What is Proof-of-Stake (PoS) ?
Proof-of-Stake (PoS) is a cryptocurrency consensus mechanism for processing transactions and creating new blocks on the blockchain. A consensus mechanism is a method for verifying records in a distributed database and securing the database. In the case of cryptocurrency, the database is called the blockchain – that is, the consensus mechanism is provided by the blockchain.
What is Proof-of-Work (PoW) ?
Proof-of-Work (PoW) describes a system that requires a non-trivial but feasible amount of effort to prevent unwarranted or malicious use of computing power, such as sending spam emails or launching Denial of Service attacks. This concept was later modified to include digital currency by Hal Finney in 2004 through the idea of ”reusable proof of work” using the SHA-256 hashing algorithm.
After its introduction in 2009, Bitcoin became the first widely adopted application of Finney’s PoW idea (Finney was also the recipient of the first Bitcoin transaction).
Proof of work has also been the foundation of many other cryptocurrencies, allowing for secure, decentralized consensus.
Whats the difference between Proof-of-Stake and Proof-of-Work ?
Proof-of-work (PoW) and proof-of-stake (PoS) are two different methods of verifying cryptocurrency transactions. These two concepts are important in cryptocurrency transactions and security. They are the main components of blockchain technology and how it works.
Proof-of-Stake and Proof-of-Work are known as consensus mechanisms. Both help in different ways to make transactions fair for users, by incentivising good actors and making it harder and more expensive for bad actors. This will reduce fraud such as double spending.
To understand the difference between Proof-of-Work and Proof-of-Stake, it helps to know a little about mining.
In Proof-of-Work, verifying cryptocurrency transactions is done through mining. In Proof-of-Stake, validators are chosen based on a set of rules depending on the “stake” they have in the blockchain, meaning how much of that token they commit to locking up to have a chance to be chosen as a validator. In either case, the cryptocurrencies are designed to be decentralised and distributed, which means that transactions are visible to and verified by computers worldwide. Computers on the network must agree on what is happening in order to verify transactions. If a computer tries to manipulate or make fraudulent transactions on the network, it will be known due to the public, immutable nature of the blockchain. Both consensus mechanisms have economic consequences that punish malicious actors who attempt to disrupt the network.
Which is better ? Proof-of-Stake or Proof-of-Work ?
Proof-of-Work is a competition between miners to solve cryptographic puzzles and verify transactions to earn block rewards. Proof-of-Stake implements randomly selected validators to ensure that the transaction is reliable, which is paid in cryptocurrencies. Each option has unique advantages and disadvantages.
Downsides of Proof-of-Stake
The main problem with Proof-of-Stake is that it often requires a large initial investment. To qualify as a validator, you need to buy enough native cryptocurrency token, which depends on the size of the network. In theory, people have to be rich or earn enough money to buy a stake in the network, leading to an exclusively rich blockchain. As the market value of cryptocurrencies increases, this problem may worsen.
Downsides of Proof-of-Work
Proof-of-Work requires a lot of energy to verify transactions. Because the computers on the network have to spend a lot of energy and do a lot of work, the blockchain is less environmentally friendly than other systems.
Another problem that some have pointed out is that due to the competition between miners for rewards, a small number of mining pools control the blockchain, a kind of de-facto centralization. However, it is important to note that mining pools are made up of individual miners or smaller groups of miners who are free to withdraw their hashing power if they no longer agree with the direction of the larger mining pool.
