Crypto TREND - Fifth Edition



What changes could be game changers for the cryptocurrency sector? An alternative method of block verification called I'll try to keep this explanation at a fairly high level, but it's important to have a conceptual understanding of what the difference is and why it's an important factor.

Note that the technology underlying digital currencies is called blockchain, and most digital currencies today use a verification protocol called Proof of Work (PoW).

Traditional payment methods require you to trust a third party, such as Visa, Interact, or your bank, to process your transactions. These trusted entities are "centralized". In other words, it maintains its own private ledger that stores each account's transaction history and balance. They will show you the transaction, and you must agree that they are correct or initiate a dispute. Only the parties to the transaction can see it.

In Bitcoin and most other digital currencies, the ledger is "decentralized". This means that everyone on your network gets a copy, so you don't have to trust a third party such as a bank. Because everyone can see the information directly. This review process is called "distributed consensus".

PoW requires “work” to be done to validate new transactions for entry into the blockchain. For cryptocurrencies, this verification is performed by "miners" who must solve complex algorithmic problems. As algorithmic problems become more complex, these "miners" need more expensive and powerful computers to solve them before anyone else. "Mining" computers are often specialized, usually more adept at solving these difficult puzzles, and use faster ASIC chips (Application Specific Integrated Circuits).

Here is the process:

Transactions are grouped into a "block".

Miners verify that the transactions within each block are legitimate by solving a hashing algorithm puzzle known as the “proof of work problem”. The first miner to solve the

block proof of work issue will be awarded a small amount of cryptocurrency.

Once verified, the transaction is stored on the public blockchain across the network.

As the number of transactions and miners grows, so does the difficulty of solving the hashing problem.

PoW contributed to the launch of blockchain and decentralized trustworthy digital currency, but especially the power miners used to address the "proof of work problem" that needs to be resolved as soon as possible. The quantity has some real flaws. Bitcoin miners consume more energy than 159 countries, including Ireland, according to Digiconomist's Bitcoin Energy Consumption Index. As the price of each bitcoin increases, more and more miners try to solve the problem, which consumes even more energy.

All this electricity consumed just to validate transactions is, has motivated many in the digital currency industry to look for alternative methods for validating blocks, a leading candidate being a method known as Proof of Stake (POS).

POS is still an algorithm, the goal is the same as Proof of Work, but the process of achieving the goal is very different. There are no miners in POS, only "validators". POS is based on trust and knowledge that everyone validating a transaction has a role in the game.

Thus, instead of spending energy to answer her PoW puzzle, the POS validator is limited to validating a percentage of transactions that reflect ownership. For example, a validator who owns 3% of the available Ether can theoretically only validate 3% of the blocks.

In PoW, the probability of solving a proof of work problem depends on how much computing power you have

In POS, it depends on the amount of “at stake” cryptocurrency. The higher the stake, the higher your chances of solving a block. Winning validators receive transaction fees instead of earning cryptocurrencies.

Validators participate in staking by "locking" a portion of their balance tokens. If you attempt to do anything malicious to the network, such as creating an "invalid lock", your wager or security deposit will be forfeited. If they do their job and do no harm to the network, but don't win the right to validate a block, they get their wager or deposit back.

It is enough to understand the basic difference between PoW and POS. Only those who plan to become a miner or validator should understand all the details of these two validation methods. The vast majority of people who want to own cryptocurrencies only buy them through exchanges and are not involved in the actual mining or verification of block transactions.

Most people in the cryptocurrency industry believe that for digital currencies to survive in the long term, digital tokens must transition to his POS model. At the time of writing, Ethereum is the second-largest digital currency after Bitcoin, and its development team has been working on a POS algorithm called “Casper” for the past few years. Casper is due to be implemented in 2018, and Ethereum is ahead of all other major cryptocurrencies.

As we have seen in this area, major events such as the successful implementation of Casper could cause Ethereum's price to rise significantly. Stay tuned for updates in future issues of Crypto TREND.