The two most popular consensus techniques used by blockchain networks are Proof-of-Work (PoW) and Proof-of-Stake (PoS).
Firstly what is a consensus technique? A requirement of a blockchain network is a collective agreement between all parties that all added information is true.
This technique refers to as the consensus. The consensus technique, therefore, is the process that validates the correctness of every transaction on the blockchain.
PoW and PoS are two common techniques used to verify transactions on the blockchain.
The major difference between them is that PoW entails computers to solve complex equations (aka ‘mining’) to do so, whereas PoS entails owners of certain crypto to ‘stake’ their coins.
That’s the short answer – now let’s have a look at both in a bit more detail.
A brief about PoW
The primordial consensus technique used by the primordial cryptocurrency, bitcoin is PoW.
It works by incentivizing people to ‘mine’ blocks of a blockchain for the return of rewards.
Miners work in a competitive space with each other – the first miner successful at mining a block receives the reward, usually a portion of the crypto they’re mining, plus transaction fees.
The mining procedure itself involves fixing complex cryptographic puzzles with high-powered computers.
What are the drawbacks of PoW?
Often people say that PoW is not explicitly eco-friendly. A notable amount of power is used in mining, as it is frequently reported by the media.
This disadvantage isn’t helped by bitcoin and other altcoins’ rising prices, which leads to a greater number of people wanting to mine them, and more energy needed as a result.
However, as a response to this criticism, people have insisted that the regular banking system utilizes just as much, if not more, power than crypto.
Another deliberation is the potential for 51% attacks. A 51% attack refers to an attack on a blockchain by a section of miners who control more than 50% of the network’s hash rate (computing power).
To read more about how they occur and just how vulnerable PoW blockchains are to them here.
A brief of PoS
Unlike PoW, PoS does not rely on computers to reach a consensus. Its own process takes the action of incentivizing members (known as stakers or validators) to stake a minimum amount of crypto to the network, in a form of the network’s native tokens.
Nodes on the network further lock up these tokens for a certain amount of time using a smart contract.
Afterward, an algorithm randomly selects which nodes will verify each new block – the more tokens you stake and the longer you stake them for, the higher the chances are of getting picked.
PoS verifiers are rewarded in transaction fees and often are granted voting rights with consideration to any changes made to the protocol.
PoS is clearly a more eco-friendly sustainable option than PoW – it’s not hard to see why so many networks are turning towards it. A 51% attack is also hypothetical impossible on a PoS network.
Some argue, nevertheless, that PoS networks multiply inequality – rewarding those with large stakes held over time could be seen as deliberately making the rich richer.
Can PoW and PoS network a blockchain?
After launching a PoW back in 2015, the Ethereum network has decided presently to transform into a PoS blockchain.
The network is steadily implementing a protocol called Casper to replace miners with validators.
The foremost stages of Ethereum’s Casper upgrade will involve a hybrid PoW/PoS model, with the PoS system lined on top of the PoW system. If you want to find out more about Casper, and how it works, and also Ethereum’s future as a PoS blockchain click here.
The PoW model clearly leaves a lot for desire, despite the original mechanism and the prototype for many succeeding cryptocurrencies.
Yet could this second-largest network moving to a PoS model spark a major trend in the crypto industry? Do you think other cryptos will follow this trend?
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