Ergo & Cardano : PoW & PoS Interoperability
Both Proof of Stake and Proof of Work models can provide different benefits but, they can also be complementary and create a more robust blockchain ecosystem.
Bitcoin is the first UTXO based blockchain however its design isn’t meant for smart contracts. Ergo Blockchain uses extended form of UTXO(eUTXO) Model for handling smart contract operations. This is called as Multi-Stage Contracts. Ethereum on the other hand is using Acoount-Based Model. Account Based model doesn’t rely on unspent transaction output data but it relies on accounts data. In this type, smart contracts can be more easily implemented but with a cost: It requires huge amounts of data stored on blockchain so the blockchain can become congested at a faster time. This would harm the scalability and leads to higher transaction costs.
Ergo Platform Blockchain is developed on a different type of form of PoW mechanism and It’s called Autolykos. Autolykos empowers individual miners and disfavors mining farms with its ASIC-resistant mining algorithm. Decentralization was a priority so there was no premine and the project is protocol funded with only %10 of mining revenue going to development fund. After 2.5 years, Treasury Reward starts decreasing, and gradually reduces to 0 after another 2.5 years.
Cardano and Ergo is built on the UTXO model of Bitcoin but extended the idea by enabling Turing complete smart language called eUTxO. This form of UTXO brings many more capabilites with more scalability and security. In UTXO model, it’s easier to process parallel operations but it’s hard to implement this kind of smart contracts on Bitcoin’s script language. Ergo Blockchain is solving this issue by providing an enhanced script. Therefore Multi-Stage Contracts will have a lot of advantages over both Bitcoin’s simple UTXO design and Ethereum’s Account-Based Model.
Proof of works like models like Bitcoin or Ethereum are different in nature than Proof of Stake models like Cardano or Waves blockchains. In PoW model, trust relies on miner effort to keep the network safe and latter relies on the amount of assets staked. Both of it has its own vulnerabilities. However two systems can work in harmony to build a sound blockchain as adapting complementary use cases and building a better solution.
In PoW you can face with %51 attacks so there should be an incentive for miners to keep going. Thus, the system incentivises liquidity flow(after full issuance) so that miners can generate fees. PoS on the other side should incentivise stakers to prevent %51 attacks. Yet, when yields from dapps surpass the yield from staking, then the staked amount might drop thus making the system vulnerable. Both systems must aim a different economic model while securing the system and implementing use cases.
So it’s better to combine two types of trust mechanism for different cases for creating a more sustainable ecosystem. This can happen via Ergo’s NIPoPoW (Non-Interactive Proofs of Proof of Work) implementation with Cardano. NIPoPoW enables different chains to communicate between each other so that an action in some PoS chain can also trigger another action in PoW chain. For more, it can trigger various complex smart contracts by creating circular messages and enable seamless communications across multiple chains.
Using an efficient UTxO model for fast transactions is more convenient than using an Account Based model where network congestion can occur. Spendable UTxOs and Non Interactive Proofs can connect multiple chains without hassle and doing so will maintain long term scalability and parallelization of dApps across chains .
Ergo is founded by a founder of smartcontract.com(now Chainlink) Alex Chepurnoy, one of the favorite technologists of Charles Hoskinson, and recently they partnered up under the alliance of EMURGO to bring complete blockchain solutions. Cooperation will enable a larger global network with more secure and scalable solutions. Stablecoin of Ergo SigUSD is already functioning on Cardano lightwallet Yoroi and Cardano oracle pools(link) are deployed on Ergo blockchain. Additionally, the Plutus upgrade will allow smart contracts on Cardano to be activated and soon we will be able to see how these two ecosystems can combine.