As everyone get accustomed to initial way of cryptocurrency emission which is called Proof-of-Work mining, more and more cryptos move onto new algorithms, that don’t require such expensive equipment to generate new blocks.
Let’s see the difference between PoW and PoS systems
Proof-of-Work is the original scheme that was implemented in Bitcoin, Litecoin and countless other currencies. The principal characteristic of this method is that it needs big amounts of electricity.
Why? The main duty of those who confirm transactions and generate new blocks in blockchain, and it doesn’t really matter is it mining, staking or any other algorithm, their main duty is to prevent attacks on the main net. Each transaction in blockchain must be verified by several nodes, the more verifications the safer a transaction is.
If someone gets enough resources, 51% of all resources on the main net, he would be able to verify his own transactions, and do anything he wants, for example, canceling transactions he already made. That’s called 51% attack.
All blockchain systems are designed in a way that makes no sense in attacking a system. Proof-of-Work requires miners to spend a lot of computing power to solve the tasks, finding the exact hashing number that starts with 0000. The miner who finds this number, generates the block and gets the reward.
To be a miner, you must have large amounts of computing power, that means an expensive equipment. The more power you have, the more chances you get to find the solution. That protects the chain from attacks, because anyone who would be able to attack, for example, Bitcoin, should have thousands of millions of dollars in equipment, which works only with Bitcoin, and he would lose the most from this attack.
Anyway, if wanna be a miner, you must buy some tech, and if you decide to get out, it’s hard to sell all this equipment.
That’s why Proof-of-Stake algorithm is invented.
With Proof-of-Stake you don’t need any computing power. All you need to verify transactions is some coins on the blockchain. That’s called staking, because you stake coins. The principle is the same – the more coins you get, the more chances you get to verify the transactions.
To stake you must have your coins locked somewhere in a contract or just simply keep it in the wallet, depending on the currency you have. You can’t sell it or move it, because if you do, you’re not able to verify the blocks hence no reason to reward you.
PoS algorithm makes attacking the chain really devastating for attacker, because if he can land a successful 51 attack, that means he has more than 51% of all coins, and if something happens with this chain, his own coins will lose its value.
In some currencies that require locking coins for staking, attacking the network results in loss of attacker’s coins, they get burned or destroyed – a heavy penalty to ensure that nobody with significant amount of influence over the network would try to do anything damaging to it.
As we see, as in PoW, you must spend some money to get a possibility to influence heavily on the process of verifications. But there a difference. No electricity wasted. If you want to get out, all you have to do is to sell all your coins on any exchange. No useless ASICs left. That’s a lot better. If you have enough staking coins, you’ll get your rewards pretty often.
Among cryptocurrencies with PoS algorithm there’s a lot of good promising coins. To name a few, DASH, NEO, PivX, CRP, OkCash, NAV Coin, Stratis, Reddcoin.
We feel the urge to talk about the CRP coin (cryptoforce.world). That`s a relatively new PoS coin, which lets you stake and get new coins in the process of staking.
They have a lot of plans for development, new wallets, an exchange, crypto cards, ATMs, and even a crypto bank with crypto loans! Seems like it`s a good time to do some research about this coin, because now staking seems to become more popular, and people seem to like the fact that you can enter the project and leave it whenever you want. Just accumulate it, no need to rush, and you`ll get a steady flow of income in new coins each month.
I hope this article helps you to understand the main difference between PoW and PoS and why Proof-of-Stake is better. Remember, liquidity of an asset is a very important thing in investing.
Thanks for reading!
Article prepared with the support of technological company which developed the cryptocurrency Crypton is made on Blockchain basis with use of advanced method of transaction execution – Proof of Stake.
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