1/20 XRP's Consensus Protocol vs Proof of Work (POW) and Proof of Stake (POS), and why Flare is superior to Ethereum for DeFi and stable coins.

A thread.

2/20 POW, POS and Consensus are all designed to solve the double-spend problem: With digital currency, how do you prevent somebody from spending the same money twice? In a decentralized system this was THE problem to solve.

3/20 POW is one solution, used by Bitcoin. Miners use computers (ASICs) to solve cryptographic algorithms that verify transactions, then post them to the blockchain. Thousands of devices compete to solve each transaction, but the one who solves it first wins some BTC as a reward.

4/20 So miners with the most powerful/expensive hardware have the best chance of rewards. To increase the chances of winning, groups create mining pools to increase their odds and split the reward among the pool members. POW is extremely computationally and resource expensive.

5/20 POS is another solution, which will be used by ETH 2.0 when live. POS isn't based on who has the fastest hardware, but who has the most tokens staked. Staked tokens are frozen and can't be spent. There is no mining reward with POS. Rather, "forgers" earn the transaction fee.

6/20 Your chances of earning the fee is the % of all staked tokens you posses. So if you hold 1% of all staked ETH, you have a 1% chance of earning the fee by solving the puzzle and verifying the transaction. The winner is chosen randomly based on the amount staked.

7/20 Because competition for fees doesn't require an ever-increasing amount of CPU power, POS is much more efficient than POW, decreasing power requirements and increasing transaction speed.

8/20 Any bad actor with 51% of mining power (POW) or 51% of staked tokens (POS) can attack the network. While it's not in the financial interests of the miners or forgers to behave in this way, it is possible. Imagine a State that wanted to bring down the network, for instance.

9/20 POW and POS both help the rich get richer. If you can afford more/better mining CPUs (ASICs) or can afford to buy more tokens to stake, you can get more of the reward. At this point it's impossible for the little guy to meaningfully compete for these rewards and fees.

10/20 The XRPL doesn't use competition (POW) or staking (POS). It uses a Consensus Protocol based on trust. A group of trusted validators run by different parties are consulted and transactions compared. If 80% agree on a transaction, it makes it into the block (called a ledger).

11/20 There are no rewards in the XRPL system. If an organization uses XRP it's in their best interest to maintain a node to protect their own XRP holdings from bad actors, and a bad actor needs control of 80% (not 51%) of nodes for a successful attack.

12/20 Each node can decide which other validators it trusts and consult with only those. The trusted validators are put on a list called the Unique Node List. If a node in the list misbehaves, it can be removed, at which point the rogue node can no longer effect consensus.

13/20 The performance advantages of XRPL's Consensus Protocol compared to POW is incredible. Bitcoin and Ethereum use POW and both far underperform XRP. XRP is also much cheaper since there are no mining rewards or transaction fees to pay out.

14/20 Ethereum 2.0 is moving to POS. When that happens its performance should greatly increase, but the problem of having to keep large quantities of tokens staked in order to ensure network security is a roadblock to its scalability into bigger financial instruments.

15/20 This is where the Flare Network really shines. Flare uses the same kind of consensus protocol as XRPL. It doesn't rely on competition or staking. That means it can scale to much larger financial endeavors than Ethereum (POW) or even Ethereum 2.0 (POS).

16/20 For instance, the US stock market's value is around $36 trillion. To move the stock market to ETH 2.0, a massive amount of ETH would have to be staked for security. Not with Flare. Its node network ensures security, freeing up the Spark token capital for other endeavors.

17/20 Flare uses the Ethereum Virtual Machine (EVM) and its programming language (Solidity) to create smart contracts on the Flare blockchain. A smart contract is just an app that runs on the blockchain. Using EVM/Solidity will greatly accelerate adoption/development on Flare.

18/20 Using EVM also means the DeFi apps that run on Ethereum can easily be ported to Flare and benefit from the efficiency of Flare's Consensus Protocol (Avalanche) compared to ETH's current POW. ETH 2.0/POS will be more efficient than ETH, but the launch keeps getting pushed.

19/20 ETH 2.0 is expected 2022-2023 (possibly later). Flare launches Q2 2021 and offers the benefit of not having to tie up capital by staking tokens, giving it much greater scalability. This same efficiency and scalability also makes Flare a great choice for stable coins.

20/20 Summary: POW is an inefficient solution to the double-spend problem. POS is better but requires tying up capital w/staking. Consensus Protocols (XRP/Flare) are highly efficient/scalable. Flare's use of EVM allows DeFi apps running on ETH to be ported for immediate benefits.

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More simple-language explainer threads on XRP. https://twitter.com/xrpartisan/status/1347653134504652801

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