A Brief Guide to Proof-of-stake (PoS)

Proof-of-stake (PoS) is a consensus mechanism for cryptocurrencies that permits the processing of transactions and supports the creation of new blocks on a blockchain. Proof-of-work (PoW) is based on network users’ capacity to prove that a particular mathematical task is accomplished. It needs a mathematical equation and computing power known as a node. In the context of crypto users using blockchain technology, both PoS and PoW are relevant and therefore it is essential to know the vital differences.

Key Differences Between Proof-of-stake and Proof-of-work

Proof-of-stake (PoS) and proof-of-work (PoW) are significantly different. In Proof-of-stake (PoS) there is no competition as the block creator and is chosen by an algorithm based on the user’s stake. In PoW, miners must finish solving difficult puzzles by using computers’ processing powers. The user has to own 51% of all cryptocurrencies on the network for the addition of malicious blocks for PoS. 

In PoW, to add a malicious block, the user needs to have a computer more powerful than 51% of the network. This is therefore unlikely in practical situations. There is no reward system for creating a block in PoS, such that the block creator takes a transaction fee. In PoW, the first miner needs to solve the puzzle and the user receives the reward for work.

Pros of PoS

Barrier

The PoS model has a lower entry barrier. These validators engage in this mode and have to spend money to buy tokens to win blocks. The miner on the other hand buys mining equipment and keeps operations indefinitely. It can incur energy expenditures. This allows people to take part in these activities.

Censorship is Avoidable

Proof-of-stake validators demand a significant amount of energy and require more physical presence. This implies that warehouses are filled with thousands of computers and have a single validator controlling ⅓ of the monetary network. 

More Efficiency

PoS will consume less energy compared to PoW. This is because these systems have hardware needs that are similar to today’s laptops. Validating software is not in high demand for this system. 

Cons of PoS

Less reliable security

The barrier to entry is lower and this is why PoS is less secure. Although it increases the number of validators due to decentralization, joining the network can reduce its security.

Coin Consolidation

Proof-of-stake systems encourage users to collect Bitcoin to maximize their chances of victory and obtaining rewards. This leads to the concentration of coins among a few validators. The strong finances can corner token markets and allow them to collect a majority of tokens. As a result, many investors may feel excluded.

Also Read- Popular Ways of Diversifying Crypto Portfolio

Conclusion

The PoS is significantly different from PoW. Currently, Ethereum is trying to migrate to PoS due to its pros. The factors such as more efficiency, output, and resistance to censorship are compelling reasons behind the use of this technology. In the future, there is a high possibility that PoS algorithms will allow more scalable blockchain as transactions will increase manifold.