Crypto Academy Season 4 Beginners' course - Task 6: Different Types of Concensus Mechanisms; By @daakye

Thank you Professor @sapwood for the lessons. It has given me the opportunity to really appreciate the different types of consensus mechanisms.

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THE QUESTION I CHOSE

(1) What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?

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Let's go straight into providing appropriate responses to the questions asked.

In the world of cryptocurrency, there are what we call mining protocols. These protocols aid in the validation of transactions. These include PoW and PoS. They are used to authenticate transactions. They ensure that only the necessary and acceptable transactions are included in the block. They are also known as consensus mechanisms. They are used in establishing the consensus within digital currencies like litecoin, Bitcoin and Etherium.

PROOF OF WORK ( PoW)

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Proof of work ( PoW ) is a consensus algorithm on a blockchain that is used in recording transaction data and also verifying the authenticity of transactions and saving them unto a public ledger. With PoW, miners are required to solve complex cryptographic puzzles in order for those transactions to be added. The process of verifying the transactions is known as MINNING. This is done to know the cryptographic hash value of the last recorded block.

It is more of a competition. In the sense that, the miner that is able to solve the complex puzzle first, gets the all block reward. But the only issue is that, it requires alot of time and a very good and strong computer hardware system.

The term was first mentioned in 1993 but it become paramount in 1999. And in 2009, Satoshi Nakamoto used it with his Bitcoin.

Proof Of Stakes (PoS)

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Proof Of Stake is also a consensus algorithm like PoW just that this a little bit different. It was first introduce in 2012 to correct the issue of PoW minning being too resource intensive.

This consensus protocol plinths its rewards on the number of coins you have stored on the blockchain. Meaning, the more stakes you make, the high chance of being a validator and the low the chances of the system being contravened by a third person.

One good thing about PoS cryptocurrencies is that they are pre-mined so that users can have coins to stake. This results in a total supply that is fixed from the very start. Because there is no mining of blocks, the only incentive is the transaction fee that comes with that block.

PoS does not require any sophisticated computing system like PoW does. And it is also very time efficient.

DIFFERENCES BETWEEN PoW and PoS

Now that both concepts have been made clear since we have elaborated on the two protocols one after the other. I will use this opportunity spell out specific differences between the two

Proof Of Work	Proof Of Stake
More costly	Cost efficient
Requires a lot of energy and time	Requires less energy and time
First miner to solve puzzle gains block reward	All users who stake gain network fee . Thus stake more; gain more
Very slow in working	very fast and reliable
Works in a decentralised blockchain	Works more in a centralised system
Minning is done by miners in verification	Stakes are used in verification since coins are pre-mined

ADVANTAGES OF PoW

It works on a decentralised system. The good thing about decentralised systems is that, there is little or no interfernace from a third party. This means you have all the power to your data and that no one can easily steal from you.

This encourages high level security and safety with PoW.

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DISADVANTAGES OF PoW

The mojor disadvantage of PoW is the wastage of valuable resources like time and energy. More time is required by the miner to solve the complicated mathematical puzzle. Another factor for considering PoW as disadvantaguous is the fact that, it requires complicated computer system which are also very expensive to come by these days. Not everyone would be willing to get that amount of computer hardware when there is a much simpler way using PoS.

ADVANTAGES OF PoS

• The energy requirement is much better than that of PoW as there is no need to use a lot of energy for mining blocks. The coins are already pre-mined from the very start.

• There is high transaction speed with minimum transaction fees as compared to the PoW

• You don't necessary have to have a complicated computing system.

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DISADVANTAGES OF PoS

• Unlike PoW, security issues with PoS is questionable since its a new and not all of its security features have been tested.

• The momemt you stake a coin, you can't use that coin or retrieve it until its stake time is over.

• It favors the rich who have more to stake more. For investors who have little, it will be very challenging for them. This is because, validation is based on the amount of coins you have staked. The more you have, the high the chnaces of being selected. This will really not help low income investors

SCALING CAPACITY

WHICH ONE IS BETTER IN SCALING CAPACITY

Scaling capacity can be defined as the ability of a consensus mechanism to handle several transactions over a stiputated period of time. The one with less limitation in performing several transactions within a specific period of time has a high scaling capacity.

Comparing the two consensus protocols, it is obvious that PoS has a high scaling capacity than PoW. This is becuase, with PoS, transactions are very fast and the system doesnt require any sophistiocated computing system to operate.

Moreover, PoW involves working complex mathematical puzzles which of course reuires a lot time and concentration.

EXAMPLES OF PoS

Although Bitcoin which is the mother coin as I normally call it, works on PoW, there several other altcoins like Etherium that work with PoS. Other examples include;

• CARDANO (ADA)

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Cardano is the first blockchain platform to have acquired worldwide media consideration. It is a third generation cryptocurrency blockchain as well as a dApp advancement platform. The coin or token is known as ADA. It works using a consensus protocol like PoS. It is the third in line with Bitcoin and Etherium leading the crytocurrency leader. Cardano was created in 2017.

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• TEZOS (XTZ)

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It is a crytocurrency with the coin or token known as tez or tezzie. It also works on the PoS mechanism. It was first introduced in 2014 by Arthur and Kathleen Breitman who happen to be husband and wife. The current value of Tezos is $6.73 .

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• NEO

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Neo was formally known as Antshare. It is the first Chinese open source blockchain project. It currency exist on the Neo's blockchain and it operates on the proof of stake consensus protocol. it has one more crypto token known as GAS which can be stake. Neo was created in 2014.

CONCLUSION

In conclusion, both consensus mechanisms are good in their own unique way. But we can't overlook their respective pros and cons. I noticed that indeed most of these cryptocurrencies that work on PoS are new ones. But have a lot of potential even to overcome the indiginous tokens like bitcoin. Etherium which is second to Bitcoin has and is gradually shifting from PoW to PoS. I believe that im due time, the security issues with PoS will be tackled to make transactions not only faster but safer as well.

I have really understood the different types of concensus mechanism. I am grateful to you Professor @sapwood.

Thank you and have great day.