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Proof of work vs Static proof of stake
Bitcoin achieved the first distributed blockchain-based transaction ledger and an immutable digital currency. To achieve this, Bitcoin rewarded the distribution of computing equipment to maintain a decentralized blockchain and secure network. There was a short period of time when this worked well, but now Bitcoin rewards the accumulation of computing power, and only a few consolidated pools maintain the network.
The rapid growth of the Bitcoin network is also a disastrous burden on ecology. The exponential expansion of computing power has lead to a similar rise in difficulty, and power hungry mining consume a vast amount of electricity.
This concentration of power threatens the distributed model of checks and balances, and even governance over core development is at odds with how to solve the growing problems. A single transaction confirmation can take in excess of 12 minutes (blockchain.info, 2016) and the technology is vulnerable to attacks increase the delays.
Thus, ionomy.com rejected mining and proof of work as the basis for security and adopted proof of stake instead.
Critics of proof of work developed proof of stake (PoS) as an alternative protocol. PoS systems depend upon a low-energy, distributed computing network to achieve the same ends of a secure, distributed blockchain. They rely on accumulation of coin instead of computing power as the basis for rewards for securing the network.
Early models of proof of stake were designed around "coin age," the length of time that the coin was held in a wallet, and “coin weight,” the total amount of coin in the wallet. These have proven to be necessary but insufficient conditions for rewards because they do not reward active facilitation of network transactions. In theory, and in practice, holders of cryptocurrencies based on the first versions of PoS could deposit large volumes of coin into a wallet, take it offline, accrue coin age for an extended period of time, then bringing the wallet online momentarily to obtain an instantaneous reward.
This first version of PoS rewards users for holding onto coins without actively contributing to the integrity of the network. In this model, exchanges and other large holders of coin maintain offline wallets, and only periodically connect them to the network to generate and sell the stake. This directly increases the coin supply while driving down the market value of the coin.
In contrast, ION uses a "static" proof of stake system, version 3 (PoS 3, or SPoS), which aligns incentives with user behaviors to actively contribute to a robust, fast, and secure network. The reward is “static” because it is always the same (50% of the block reward). Coin weight still matters, but “connectivity age,” – the duration a wallet maintains active network communication – replaces coin age as the primary probability parameter for staking. Rewards are thus contingent upon active work and the amount of ION held in wallets to maintain and secure the network.
In addition, ION implements masternodes (Duffield, 2015) to reward large holders of coin, contribute to network robustness, and perform advanced functions such as near instant and private transactions.