What does Proof of Stake mean for the future of crypto? Find out with BTCMEX.
Future of cryptocurrency by BTCMEX
Proof of Work (PoW) and Proof of Stake (PoS) are the consensus mechanisms that are used to verify transactions on a blockchain. Proof of Work is the technology on which Bitcoin network was built, while Proof of Stake is a relatively new invention, which a lot of crypto enthusiasts find extremely promising today, and this is why.
The majority of cryptocurrencies are working on Proof of Work blockchain. It was introduced with the first successful digital currency - Bitcoin. Other popular blockchains that have installed Proof of Work include Bitcoin Cash and Litecoin. Other networks. Like Dash or NEO, already use Proof of Stake. On the way to the Serenity upgrade, Ethereum is performing a number of Hard Forks to switch from PoW to PoS.
Proof of Work (PoW)
Proof of Work made it possible to eliminate a third party from verifying a transaction on a blockchain. PoW mechanism is based on complicated cryptography. The equations are so difficult, that only powerful computers can solve them. That’s why mining is a very time and energy-consuming process today. Find the intro to mining by BTCMEX here.
For decrypting the code and verifying a transaction, miners get a block reward - new coins on a blockchain. The most powerful and expensive mining hardware devices will always have the greatest chance of winning the reward.
Proof of Stake (PoS)
In a Proof of Stake blockchain a user that creates the next block is selected on how much they have ‘staked’. Technically there’s no mining or a block reward anymore. Every time a new block is verified, those who contribute to the Proof of Stake system simply earn the transaction fee.
PoS model requires node operators to freeze an initial amount of coins in a specific wallet, then the system randomly chooses the winner based on the amount they have staked.
Proof of Stake is here to solve several important problems like centralization and mining monopoly, electricity consumption, hackers’ attacks, and cryptocurrency inflation.
Read further about the ways of improving scalability in crypto with BTCMEX.
Please note, that the article is a part of BTCMEX Blog, the views and opinions expressed here are the contributing author’s only, and do not necessarily represent the views of the company.
Julia Bulakh for BTCMEX