Consensus

While Proof-of-Work and Proof-of-Stake have solidified as primary ways to achieve consensus in blockchains, they both inevitably lead to centralization and potentially to reduction of security.

With Proof-of-Work this is primarily driven by need to access to exotic hardware and cheap electricity, which limits the number of people who can participate. With the growth of the network and difficulty increase it also becomes impractical for small miners to participate without mining pools due to infrequent and unpredictable rewards. Another complication is existence of services like Nicehash that allow to buy large amounts of compute for limited amounts of time on an open market, which makes it very practical to own the network and in case of anything that is smaller than Bitcoin arguably fairly inexpensive.

With Proof-of-Stake currently staked owners of tokens get richer every day, which arguably makes it a permissioned system. Due to being premissioned and requiring on-chain registration before participation, most Proof-of-Stake implementations have to substantially limit the number of consensus participants by imposing things like minimum stake amount as well as only selecting a subset of validators to be active at any time. Due to the nature of consensus implementation it is also important for consensus nodes to stay online, so those unable to are typically being punished for it on top of simply having their tokens locked and not receiving rewards. This also leads to pooling and centralization. Blockchains like Polkadot support nominated staking that improves scalability of consensus participation to some degree, but it is not a full replacement for being able to participate in consensus individually.

Proof-of-Space

The alternative to above that is not talked about quite as much is Proof-of-Space. There are different variations of it, but a shared trait between them all is permissionless participation with low energy usage requirements, while also utilizing the resource that is generic, widely distributed and abundant: disk storage.

The most prominent example of Proof-of-Space consensus is probably Chia. Chia is essentially an energy efficient version of Bitcoin that wastes disk space to store random data just like Bitcoin wastes compute to calculate hashes. It also happens to suffer, just like almost every other Proof-of-Space blockchain from Farmer’s dilemma, which makes incentive compatibility a challenge.

While this is an improvement over Proof-of-Work, turns out it could be even better.

Proof-of-Archival-Storage

Proof-of-Archival-Storage is a flavor of Proof-of-Space, more specifically Proof-of-Storage, that instead of filling disks with random data stores the history of the blockchain itself. This not only resolves Farmer’s dilemma, but allows for a few interesting side effects:

• On-chain storage cost no longer needs to be hardcoded, it can be driven by on-chain Automated Market Maker thanks to ability to measure not only demand for storage (size of blockchain history), but also supply (space pledged to the network by farmers), resulting in approximation of real-world price of the hardware, regardless of the token price
• The history of the blockchain can’t be lost regardless of how large it becomes, in an incentive-compatible and sustainable way, as long as the blockchain is operational
• Blockchain effectively becomes a Distributed Storage Network since any piece of data uploaded to the network can later be retrieved from the network of farmers

To make pools even more interesting to farmers Autonomys Network was deployed with voting mechanism built-in that increases frequency of rewards 10x comparing to just having block rewards, making it possible to receive weekly rewards for even relatively small farmers.