Every payment platform must ensure that all transactions are legal and that no two people spend the same amount of money. This is done by the central authority on centralised platforms such as Visa and Mastercard. Consensus mechanisms are used when there is no central authority, such as on a blockchain. You may be familiar with Proof of Work (PoW), and Proof of Stake(PoS). Are you aware of the differences between them? Which is better: proof of stake or proof of work? Let’s look at the terms and see how they differ from one another.
Evidence of Work: What is it? Why? How do you prove it?
The oldest consensus mechanism on blockchain is proof of work. It was first implemented using Bitcoin. It is closely linked to mining. Proof of work, also known as blockchain technology, is a concept that can be used to prove the existence of a transaction. It’s the use of large amounts of computing power to solve a problem. All blockchain miners are competing to solve a math puzzle using their computers. The crypto reward is given to the first person to solve the puzzle and allows them to add a transaction to the blockchain.
This mechanism is a powerful tool to validate a transaction. As the crypto asset’s value increases, so does the number of miners. Due to the high number of miners contributing their computing resources, no one individual can alter a blockchain. This method has been adopted by many others, including Monero (XMR), Ethereum 1.0 (ETH), and Litecoin(LTC).
However, proof of work requires a lot more resources and energy. You will need a lot more energy because you need to have lots of processing power. According to estimates, Bitcoin is generated using more energy than it is used by many countries. This creates more problems for expansion. You won’t be able to get smart contracts or NFTs powered with Bitcoin if you don’t have proof of work. Bitcoin smart contracts cannot be economically viable without proof of work.
Learn about: Introduction and benefits of Smart contracts in Blockchain
What is Proof of Stake?
What if you need a system that can verify transactions securely and also supports smart contracts, DeFi, and NFTs. In this case, proof of stake is helpful. This was created when it became apparent that proof of work was not sustainable to scale a blockchain in order to meet demand. How does proof of stake work?
Staking is a method of proving stake, instead of mining. Although the methods of staking may vary from one blockchain to another, all blockchains have a network that validates their crypto and allows them to earn additional rewards. This reward system rewards validators with the highest investment in the blockchain.
The network determines the winner based upon the number of crypto assets and how long it has been staked. The winner is then able to verify the most recent blockchain transaction. The transaction is then verified by other validators. All validators who reach a certain threshold receive rewards proportional their stake.
It sounds great but what are the drawbacks? The main problem is that crypto hoarding can be incentivized by proof of stake. You get more rewards for investing in a token and then staking it. So you will want to stake as many as possible. This can result in more centralization of blockchain transactions. The blockchain is less secure because centralization can reduce the reliability of validation.
What makes them different?
There is a difference between Proof Of Work (POW), and Proof Of Stake.
Last Thoughts
You, like us, know that crypto-assets could bring about a brighter future. Both proof of work and proof that you are a stakeholder will be required for the economies of the future. With minimal investment in specific digital assets, proof of work is a simple way to get rewards. For blockchain-based economies in all domains, proof of stake is the best option.
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