Bitcoin 101: Pros and Cons of Proof of Stake Mining
Before I get into Proof of Stake, it’s important that you first understand the basics of Proof of Work.
This video today will be building on what I covered in my last video. If you need a refresher or if you want to learn more about Proof of Work, go ahead and check out that video.
The concept of Proof of Stake mining is similar to Proof of Work mining in that the miners are still needed to unlock or create new blocks that contain new coins, which they are then rewarded.
^^^^^VIEW VIDEO HERE^^^^^
Basically, the way that Proof of Stake works, and what gives it its name, is the miners are required to hold a certain amount of the coin in their wallet, or stake, in order to qualify to mine for new blocks.
These qualified miners are then randomly selected to be able to mine the next new block and receive the new coins that are in it.
Contrast this with how Proof of Work miners are all competing to unlock the next new block, using lots of energy to do so, and it’s easy to see how Proof of Stake is more efficient.
Similar to Proof of Work and how different networks use different hash algorithms, the staking rewards and staking mechanisms differ for Proof of Stake networks as well.
We have yet to achieve perfection in this world of cryptocurrencies.
There will always be pros and cons to each system.
The problem with Proof of Work is that it takes a lot of computing power, and therefore a lot of energy to run the network and maintain the blockchain.
In fact, it is this requirement for large amounts of computer power that acts as the security measure against any one entity being able to control the network (51% attacks)
This was especially true before things like mining pools were created...but that’s something to be saved for another post.
There are many pros and cons for Proof of Work, but for the purposes of this video, here are a few:
Pros:
- More decentralized network
- More secure network
Cons:
- Requires large amounts of energy
- Wasted computing power
Proof of Stake is at least a more energy efficient way to essentially accomplish the same goals. However, there are a few hang ups for this system as well.
Proof of Stake limits who is able to help secure the network by requiring miners to hold a certain amount of its coins in their wallet.
Some Proof of Stake coins have been pre-mined, and some have even been “significantly pre-mined", meaning the individuals who created the coin were able to mine coins before going public.
This can very easily result in whales, or individuals who hold large amounts of a coin, who then qualify to run a large number of staking nodes.
A network that is already less decentralized thanks to this minimum coin requirement, could end up with a few wealthy individuals who would ultimately be able to control the network by running a majority of the staking nodes.
Pros:
- More energy efficient
- Better rewards for staking your coins
Cons:
- Less decentralized network
- less secure network
Proof of Stake is an advancement of the idea behind Proof of Work, and with it often comes other mechanisms that work to provide other services that enhance how the network runs.
These are called Masternodes and if done correctly, they can be a way to earn a passive income.
I’ll be covering masternodes and how to find affordable options in my next video so if this is something you’re interested in learning more about be sure to subscribe to this profile and keep an eye out for my next post.
Additional Reading/Sources:
2014 List of different POS coins and their staking percentages/payout periods
More recent list of POS coins
Article by Vitalik on POS systems
Potential downside of POS
Proof of Work vs Proof of Stake
Great video and corresponding steemit post, as usual, Heidi. Perhaps you could do another video mentioning hybrid's, which reduce/eliminate the cons of PoS, while maintaining most/all of the security provided by PoW. An example that I am EXTREMELY bullish on is Pinkcoin(PINK), which @thejadecrow wrote about for us. They've been around for about 4 years, making partnerships with charitable organizations, slowly but surely making the world a better place. I've tried to draw attention to the project to prominent YouTubers but no one seems to care, even though it's one of the small selection of coins of Poloniex. An obvious reason for this is that most of us in the crypto space are male and they simply don't want to associate with it because the name sounds girly to them, as shallow as that sounds. Seeing as you're the first female I've harassed about it, perhaps you'll be the first prominent YouTuber to finally bring it to the forefront :)
Also, Unity wrote an article about Peercoin(PPC) here if you would like to check that out by any chance.
Thanks for all the value you bring to the community. Hopefully we'll be seeing you at a convention someday somewhat soon :)
-Tom (@MyEmpireOfShit here and on twitter)
Hi Heidi!
Thanks a lot once again for this interesting video.
The problem with PoS is that as always the richer simply become even more rich and the poor ones will always stay poor. I personally prefer PoW to be honest.
WOW thanks a lot for the upvotes! I really appreciate that.
However in POW there two actors:
Nodes and miners. They both keep each other in check.
In POS most nodes are the stakes.
Proof of stake can evolve into a piramidal scheme which is DANGEROUS for the sake of crypto
Much less dangerous when it's combined with PoW though :)
This was a good intro to the PoS concept. Masternodes can be quite an investment depending on which crypto you choose, but I like this concept better than PoW mining because I can effectively do it on my own without being a memeber of a pool. My current favorite PoS coin is @smartcash. The crypto is resonable right now to get in and they have Smart Rewards that earn you a reward every month for every 1000 Smartcash you have in your wallet. So you can earn while building up your stake for a Smartnode which is what I’m doing now. Check them out the at SmartCash.cc and also @smartcash here on steemit. Really cool community doing some really cool stuff. Thanks for the video @heiditravels!
POS new coins seem to be getting better. Just like with anything new adoptions happen over time. The new coins are mostly ICO and then go into smaller master nodes where you need less coins which creates are more decentralized system. I have hopes of POS DPOS I dont honestly which is what steem runs on at the moment. now DPOS seems very centralized.
The steem blockchain runs DPOS.
Great cryptocurrency analysis, the knowledge you have about bitcoin is massive, the video quality is top notch and very commendable , great post @heiditravels I await you next lessons
While PoS with an unlimited supply (much alike the currently prevalent Fiat system) could work, PoS with a capped supply is a certain way to doom.
If you want energy efficiency, decentralization, distribution fairness and scaling there is - at least for the time being - only one coin to look into.
https://www.burstcoin.ist/2017/10/30/going-further-a-poc-and-pos-comparison/
this video is very important for me
@heiditravels the link to the POW video links back to this article on POS.
And thanks for the articles! :-)