Comparing PoS With PoW: Which Works Better?
When comparing cryptocurrencies, price alone isn’t the only factor to consider. In today’s global market, government agencies and central banks have complete discretion over whether or not to honor dollar and other fiat currency transactions.
Bitcoin and other cryptocurrencies take a different tack by doing away with the necessity for centralized regulatory bodies. To maintain fair administration, like a representative democracy, virtual currencies rely on consensus procedures in the lack of such government regulators.
Popular consensus techniques include PoW and PoS. To begin, it is important to comprehend the rationale for the need for these consensus processes in today’s cryptocurrencies.
Proof of Work
The great majority of digital currencies employ the original consensus mechanism, Proof of Work. PoW-based cryptos rely on a network of “miners” who validate payments in return for a payout.
When a new block of activities is ready to be added to the blockchain, miners must execute challenging “tasks” to make that happen. This often entails a computationally intensive task, such as addressing a hard math puzzle or a strong cryptographic code.
When the network operates under this definition of “work,” it is better able to prevent attacks from criminals and fraudsters. To hack a cryptocurrency that relies on proof of work, an attacker would need to donate an enormous amount of computing power. Thousands of individual, trustworthy miners make this impossible in a network as vast and well-established as Bitcoin.
Once a miner solves the hash function for a given block, their solution may be independently verified. The miner’s work is checked by the network, and if everything checks out, the block is added to the blockchain.
Proof of Stake
Although the Proof of Work consensus mechanism was introduced with Bitcoin in 2009, the Proof of Stake mechanism remained relatively unknown until very recently. PoS is now being implemented by Ethereum, the second biggest cryptocurrency. To verify transactions in blockchain networks, Proof of Stake takes a novel approach. PoS networks provide cryptocurrency holders voting power instead of depending on miners to supply computing power. Users “stake” their cryptocurrency holdings to cast votes on the veracity of pending transactions, as the term indicates.
To ensure the security of their assets, PoS-based cryptocurrency transaction validators are presumed trustworthy. After all, if they were successful in attacking the network, it would only hurt their interests.
For example, on Ethereum, you need to put down 32 ETH to join the ranks of the validators. This 32 ETH will be frozen for an indefinite amount of time. The user is thereafter prompted to verify a small number of blocks periodically.
However, their staked ETH will be taken away for poor conduct if their vote is judged malicious by other validators. Meanwhile, reliable validators are rewarded for their efforts.
Compared to Proof of Work (PoW), Proof of Stake drastically reduces the computing requirements, making it easier for validators to join the network.
Last But Not Least
Although Proof of Stake has several benefits, many cryptocurrencies are in no rush to switch. Of them, Bitcoin is the most prominent since its core developers and user base have seen no compelling reason to abandon PoW.
Proof of Work is currently the most secure and resistant to attacks while being a computationally costly process (with a correspondingly high environmental cost).
With its decade of experience under its belt, Bitcoin is now secure enough to support a market valuation of $1 trillion without worrying about a hack. Inadvertently, this stability has prompted governments and investment banks to accept cryptocurrency as a means of storing wealth. If you trust in your luck and know how crypto trading is done you should try investing with a reputable platform like Crypto Boom.
However, Ethereum has a greater requirement for originality because it is being developed for an entirely new purpose. Ethereum was conceived and developed specifically to serve as a Web 3.0 or cryptographic protocol infrastructure. In order to work properly, Ethereum will need to process hundreds of payments per second at very cheap fees.