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Proof of Work vs Proof of Stake

Proof of Work vs Proof of Stake

Proof of Work vs Proof of Stake

Launching the new version of Ethereum puts ‘PoW ( Proof of Work) and PoS (Proof of Stake) benchmarking’ into consideration again. Before the launch, several members of the Ethereum community have been proposing a radical shift in how the currency is mined that could change the mining process of cryptocurrencies forever. They needed this shift because mining cryptocurrencies is an energy-intensive business and nowadays, all stakeholders in the industry are discussing if it is sustainable or not?

Contrary to PoS, PoW is an energy-intensive consensus protocol and used generally by the Bitcoin network. It was built into Bitcoin’s design and replicated by other cryptocurrencies, including Ethereum. Miners use computer hardware processing power to solve complex mathematical puzzles and verify new transactions. The first miner to solve a puzzle adds a new transaction to the record of all transactions that make up the blockchain. They are then rewarded with cryptocoins. However, this process can be energy-intensive. The whole system is requiring a lot of electricity and machines working on a problem in order to solve it. For instance, the Bitcoin network alone is currently consuming the same amount of electricity a year as Colombia! Another key feature of PoW is needing a decentralised way for validating transactions.

PoS mining is trying to achieve the same outcomes as PoW; to help to verify transactions on a blockchain platform. It is a newer consensus protocol that requires less energy and involves choosing miners by how invested they are in the community. Contrary to PoW, the miner of a new block is chosen by the network in PoS - instead of the miner is the first to solve the puzzle. This new system for choosing a miner on Ethereum has been called Casper. Another shift in PoS is the new system will bring that miners are no longer rewarded for creating new blocks and the system essentially rewards those people who have a greater stake in the ecosystem. Ethereum isn’t the first cryptocurrency to be considering PoS. ShadowCash, Nxt, BlackCoin, NuShares, and Nav Coin have all implemented a version of PoS as well. PoS differs in that instead of miners, transaction validators stake crypto for the right to verify a transaction. These validators are selected to propose a block based on how much crypto they hold, and how long they’ve held it for.

Even if a shift from PoW to PoS seems energy-efficient, scalability is the key motivation, and PoS is found more scalable than PoW. This main issue will nudge more cryptocurrencies from PoW to PoS. For any further questions, please reach us via or visit our CryptoIndexSeriesTM Platform for a better analysis of the crypto market space.     

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