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Proof of Work (PoW) and Proof of Stake (PoS) are essentially two different mechanisms to mine a cryptocurrency. Interested to find out more ? read below our basic and introductory guide.
A beginner’s guide to cryptocurrency and terminology.
Proof-of-work has been around before, the widely known cryptocurrency, Bitcoin (BTC).
Proof-of-work is based on cryptography (where an advanced computational equation that is difficult to solve are solved by powerful computers, this way, the network can be certain that the transaction is an authentic one).
Thus, Proof of work is also a way to prevent double spending and ensure that the transactions are secure and valid.
In proof-of-work, the first miner to solve the problem is given a reward.
It is without a doubt that this mechanism is a great invention and opens doors to greater innovations and realization of forward thinking ideas, however, this mechanism is far from perfect.
In fact, Proof-of-work is stated to consume electricity and energy as much as countries and nations, thus, it has a lot of environmental impact in a world where climate change is an increasing concern.
Proof-of-work is also limited in the sense that it only allows a limited number of transactions at the same time.
Some of the prominent cryptocurrencies that are using proof-of-work are :
Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Monero (XMR), Dogecoin (DOGE).
In a proof-of-Stake (PoS) system, which came two years after proof-of-work, the validation and mining process is different from PoW in that miners do not have a complex equation to solve, however, it depends on how many coins he/she owns.
This way, the proof-of-stake randomly chooses the miner and he/she receive a transaction fee rather than a reward. This way, the system ensures to remain decentralized since every action is randomized.
A special merit of the proof-of-stake is that it consumes less energy and electricity, thus, it is cost effective, thus, more sustainable than the latter.
However, this system is not free of flaws. In a PoS, there is a potential problem that someone could acquire a very large amount of tokens that he can dominate and take over other validators and become in control of the network.
On the other hand, there is prevention action in place where any sudden rise in the rate of buying the tokens will trigger a sharp rise in the price of token that it becomes impossible for the attacker.
Some of the prominent cryptocurrencies that are using proof-of-Stake are :
Binance Coin (BNB), Cardano (ADA), Polkadot (DOT), Stellar (XLM), Cosmos (ATOM).
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