Proof of Work Vs Proof of Stake

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We all know how to Buy Bitcoin and Ethereum in India, but not many fully understand the core differences between the two that would arise once Ethereum transitions to 2.0. The network will transition from its current consensus mechanism to a completely different one. ‘Consensus mechanisms’ are basically the methodology that a blockchain network uses to make decisions. So it is crucial to have a better understanding of these core aspects.

The popular two

During the development of Bitcoin, the world’s first cryptocurrency, Satoshi Nakamoto was tasked with devising a method for transactions to be confirmed without the involvement of a third party. This he accomplished by developing the Proof of Work (PoW) approach.

However, this consensus mechanism employed an advanced form of mathematics called ‘cryptography’, which are basically complex mathematical puzzles that require powerful computers to solve.

Despite the fact that Proof of Work is an incredible innovation, it is far from flawless. Not only does it consume a large amount of power, but it also has a very restricted capacity in terms of the number of transactions that can be processed at once.

This fuelled the need to develop other means for a network to come to a consensus, resulting in the creation of, the now popularized by Ethereum, Proof of Stake model (PoS). The concept was originally invented in 2012 by Scott Nadal and Sunny King.

Peercoin was the first blockchain project to implement the Proof of Stake concept. Initial benefits include a more equitable and just mining system, scalable transactions, and less dependency on power. As such, Ethereum is aiming to transition from Proof of Work to Proof of Stake.

Which one is better?

Unlike PoW blockchains, PoS blockchains do not use energy usage to determine who can propose blocks. PoS proponents frequently tout it as a “more efficient” method, given the fact that PoW miners have been criticized for their use of coal and other energy sources harmful to the planet.

However, PoW miners can utilize whatever energy source they choose, including hydroelectric power, wind energy, and other less wasteful types of energy.

Additionally, PoS blockchains need the usage of specialized hardware (GPUs), which, like ASICs and other computing devices used in PoW mining, require resources to manufacture. Also, PoS miners must maintain active internet connections, which consume energy, but far less than what is required when it comes to PoW.

To be considered for adding blocks to a PoS blockchain, users must stake, or lock, a specified amount of the network’s cryptocurrency in a specific contract.

The staked amount influences their chances of being chosen as the next block producer. In certain instances, users who engage in malevolent behavior may forfeit their stake as punishment.

To avoid constantly favoring the wealthiest nodes, PoS may incorporate additional deciding criteria. These may include the duration of a node’s crypto stake, as well as pure randomization. This eliminates the power war amongst miners in the case of PoW as this method doesn’t require humongous amounts of power and doesn’t give people who purchase powerful hardware devices a greater chance of winning the mining reward.

As with the PoW method, the block reward in PoS refers to the cryptocurrency that the blockchain awards to the user who submits a valid block.

Due to the fact that block selection is dependent on coin ownership, cryptocurrency exchanges in India like Coinsbit India provide staking services that allow users to stake coins on their behalf in return for more consistent rewards.

The Centralization problem

Most significantly, PoW mining has prompted centralized companies to buy hundreds of high-powered mining equipment (ASICs). As a result, the system becomes unfair because the average individual has no chance of ever winning the mining reward. Proof of Stake differs in this regard. This approach precludes groups of individuals from banding together to dominate the network only for the sake of profit. Those that contribute to the network by locking their coins, on the other hand, are paid according to the amount staked.

About Coinsbit

Coinsbit India is a peer-to-peer crypto trading platform connecting buyers with sellers which are powered by Europe’s largest and award-winning cryptocurrency exchange. Coinsbit.in aims to bring a professional, smooth, easy, and highly liquid Crypto platform in India delivering a superior user experience.

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