The security of Bitcoin Vs Ethereum Vs Nano

InternetThe security of Bitcoin Vs Ethereum Vs Nano

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Cryptocurrencies allowed us to have money that is not controlled by a single entity and that is permissionless since anybody can join the network at any time and help in consensus. But there is a problem that needs to be solved, how will make we sure that the network will not be compromised by attackers since anybody can join the network? There are many consensus systems made to prevent this, today we will explore how Bitcoin, Ethereum, and Nano secure the consensus.

Bonus: Best Cryptocurrency to Invest in 2021 [Reddit]

1.Bitcoin: Proof of Work

  • Technology: Blockchain
  • Market cap: $662B
  • Price: $35,000
  • Maximum supply: 21M
  • Circulating supply: 18,7M
  • Transaction time: 30-60min
  • Transaction fee: $10-20

Annual energy consumption: Argentina

Bitcoin uses Proof of Work to secure the network and achieves consensus, it is a system where people who create blocks and validate transactions, called miners, needs to do a difficult computational problem and prove it to the other members of the network,it is the SHA-256 hash function who can solve this problem first, will get their block included on the blockchain, and gain rewards: New minted coins and transaction fees.

So miners will invest in more powerful hardware and spend more electricity to solve those problems first than other miners and claim more rewards, today you need to buy mining ASICs, which are specialized computers, that can only solve those problems, but much more efficient than consumer hardware, which decreases decentralization, because there are just a few companies that produce those ASICs, and to get them early, you need to make a contract and buy in bulk, gatekeeping hardware from smaller miners, also you need a cheap energy source to be pe profitable

Bitcoin has a limited supply, every 4 years the amount of new-minted coins is cut by 50%, today it is 6.25 Bitcoins, and it will be 3.125 Bitcoins in 2024, and so on, until in 2140, the network will stop minting new coins, so miners will only receive transactions fees from users to pay for their hardware and electricity.

To attack Bitcoin and dominate the network, you need 51% of the computational power of the network, so that the attacker can re-org blocks and reverse transactions, but to do this, an attacker would need to spend a lot of money in hardware and electricity, about many billions of dollars, also the attacker can only use those ASICs to mine Bitcoin, so after the attack, the attacker would have tons of useless hardware, making it a huge loss.

The difficulty to reverse a transaction, depends on how many confirmations it has, lets explain: to re-org a block, you need to do again the proof of work of this block, and every block after it, if the network is at block 100, and you want to re-org the block 97, you need to do the proof of work of the blocks 97, 98, 99 and 100.

So a Bitcoin payment gets more secure as time passes, but never 100% safe from a reversal, most merchants accept 2-3 confirmations for smaller amounts, which is 20-30 minutes, exchanges only accept a deposit after 6 confirmations, or 1 hour! Which means if you are a merchant and want to be sure that your customer is not a malicious miner that will reverse your payment, you will need to wait a lot of time, so that the cost of reversing the payment is higher than the payment itself, so as the payment is higher, the merchant will need to wait for more confirmations to feel safe, which makes Bitcoin very slow to do payments.

Also, like the amount of new-minted coins goes down, the rewards get lower, so some miners will get out of the network because they can not make a profit, so the computational power and electricity spent by the network becomes lower, unless transactions fees get higher, in the future Bitcoin will become easier and cheaper to attack, less secure, or users will pay higher and higher fees!

2. Ethereum: Proof of work / Proof of Stake

  • Technology: Blockchain
  • Market cap:320B
  • Price: $2700
  • Maximum supply:116M
  • Circulating supply: 116M
  • Transaction time: 15sec-5min
  • Transaction fee: $2-20

Annual energy consumption: Peru

Ethereum today also uses Proof of Work like Bitcoin, but it uses the Ethash algorithm, which was created to be ASIC resistant, ASICs were created for Ethereum, but because of ASIC resistance, those ASICs have a much smaller advantage than in Bitcoin, so people can still be profitable with GPU mining, improving the decentralization a bit, but it still has the problems of high fees and low scalability.

 Ethereum does not have a capped supply, 2 ETH are minted every block, which means that miners will always have incentives to keep the network secure besides fees, but it comes at the cost of an inflation rate of about 4%.

 Ethereum will migrate to Proof of Stake, when ETH 2.0 launches, in Proof of Stake, your power in consensus is equivalent to how many coins you are staking, so it is much more energy-efficient and cheaper to secure than Proof of Work so that the number of minted coins can reduce while keeping the same level of security, ETH 2.0 is expected to have an inflation rate of about 0.5%, also Proof of Stake allows higher scalability than Proof of Work, enabling faster and cheaper transaction than in Bitcoin and the Ethereum of today.

  To attack ETH 2.0, an attacker will need 51% of the coins staked, not 51% of all coins, let's say that 20% of the coins are being staked, so an attacker needs to buy 10% of the supply to get 51% of the consensus, which is more secure than Proof of Work, but still less secure than Nano, and incentives centralization, because in ETH 2.0 you will need at least 32 ETH to be a validator, and the only way to get staking rewards, is by giving the custody of your coins to a staking pool, you need to trust that the staking pool will not steal your coins, so users will give their coins to bigger staking pools, since they will give more frequent payouts and are more trustworthy, reducing decentralization and security of the network.

Bitcoin vs Ethereum vs Nano

3. Nano: Open Representative Voting

  • Technology: Block lattice
  • Market cap:1B
  • Price: $7.6
  • Maximum supply: 133M
  • Circulating supply: 133M
  • Transaction time: 0.2-1sec
  • Transaction fee: $0

Annual energy consumption: 1 wind Turbine

Nano does not use mining, people called representatives, secure the network and reach consensus to confirm transactions.

It works like this: Users have coins in their Nano wallets, they can delegate the voting weight of their coins to representatives, 1 NANO = 1 weight, so the power of the network is in the hand of everyone that hold coins, and since users do not receive rewards for delegating coins, they only delegate to improve the decentralization and security of the network.

When a transactions is published, the representatives votes if it is valid or not, after 67% of the voting weight of the network validate the transaction, it becomes confirmed.

And Nano transactions are irreversible after a single confirmation, which means that after waiting less than 1 second, even if an attacker gets most of the voting weight, the payments of merchants can not be reversed, so merchants are safe accepting payments in NANO, since they know that the customer can not reverse the payment, making Nano a safe, fast and reliable cryptocurrency to use!

And since all users are delegating their Nano to a representative, the network will remain very expensive and hard to attack forever, since an attacker will need to buy 67% of the supply, while still being feeless.

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Thomas Androwshttps://www.waftr.com
Thomas Androws is the founder of waftr.com, he loves to Blog, share his Internet knowledge, helping computer newbies, and make money online.