Crypto Academy Season 4 Beginners' course - Task 6: Different types of Consensus Mechanisms by @ederra
TASK
What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?
What is the difference between PoW & PoS?
In other to know the difference between PoW and PoS, I'll first explain them briefly.
Now, what's PoW and PoS?
PoW
Proof of Work(PoW) is a consensus algorithm in blockchain network used in confirming transactions and creating new blocks in a blockchain. In PoW algorithm, a group of people known as minors compete with each other in the network's transaction using a process called mining. A miner is rewarded when he/she successfully creates a block that is valid.
Bitcoin is the most famous PoW application.
During the process of Producing PoW, there are lots of trial and error before one, finally creates a valid block.
PoW uses the principle of mathematical puzzle which is used for easy solution determination of work.
PoS
source
Proof-of-stake (PoS) is a consensus mechanism which is used by blockchain networks. PoS is an acronym that denotes the fact that a user have successfully staked a valid cryptocurrency transaction. It is known as the main cryptocurrency mining alternative. Peercoin that was launched in 2012 was the first cryptocurrency to use PoS.
In PoS, users stake their fund through depositing it to a particular node. This node then compete with other nodes to validate the transaction, after a successful validation, the validator gets rewarded.
A node in PoS becomes a validator only when it hold tokens.
Now, what's the difference between PoW and PoS?
| Proof of work (PoW) | while | proof of stake (PoS) |
|---|---|---|
| PoW doesn't permit miners to mine or validate block transaction. | while | PoS permits miners to mine or validate block transaction in accordance with the amount of coin a miner uses. |
| PoW uses alot of energy which is required when a miner wants to sell his or her coin. | while | PoS doesn't require much energy to perform its' transactions. |
| PoW doesn't give miners mining power in regards to percentage of coins owned by them | While | PoS gives mining power regarding the percentage of coin owned by a miner. |
| PoW has high risk when considering the fact that miners decides to attack the network. | While | PoS is less risky because of the way its' compensation is given to miners. So when miner attack the network, they'll be at the loosing end. |
Advantages & Disadvantages?
Advantages of PoW
Proof of work gives rewards to it's miner after a successful validation.
Proof of work produces a decentralized network that controls the activities performed using cryptocurrencies.
Proof of Work (PoW) is highly secured because of the complications attached to it when using it, therefore making it very difficult for miners to attack.
PoW provides a solid mechanism for consensus achievement and also uses the mechanism to avoid abuse or misuse.
PoW makes blockchain network highly secured and very costly to attack by miners.
Disadvantages of PoW
PoW consumes high amount of energy thereby raising worries to miners in the aspect of cost.
The biggest disadvantage of proof-of-work is on its computational capabilities that is needed in solving mathematical problems for blockchain transaction authentication.
It's available for the rich because only powerful miners have the advantage of winning thereby making it difficult for less powerful miners to win.
The time for transaction completion process is very slow and long.
This PoW is a very expensive consensus mechanism, it functions in a way that the first miner solves the mathematical puzzle.
Advantages of PoS
PoS doesn't require high energy because it doesn't use high utility hardware like it's counterpart.
It has very high transaction speed.
It is decentralized in nature due to the fact that miners are chosen randomly.
It purnishes bad behavior by taking the token of a faulty miner which was used as collateral as payment for faulting.
The Reward given to miners after a successful validation here is not coin or token, so the price of coin or token is less volatile as compared to PoW.
Disadvantages of PoS
Liquidity in PoS is limited.
Smaller group find it difficult to participate because they have limited token when compared with institutions and companies.
It's sometimes considered centralized because only individual with large amount of token is allowed to mine.
Selling and staking of coin at the same time is not possible.
There's is a time frame for withdrawal after a successful staking, and at this time period, a miner can not withdraw.
Which one is better in scaling Capacity?
Scaling is the factor given to a consensus mechanism to help it increase the number of transaction it can verify per minute.
With the above explanation given in the topic of proof of work and proof of stake, I can now conclude that Proof of stake is more better in scaling Capacity because PoS is more flexible and is faster in Ttansaction completion than the PoW.
Examples
Below are some cryptocurrencies that uses Proof of stake.
- ETH 2.0
- BNB
- Akash Network
- 1. ETH 2.0
Ethereum is considered one of the most popular cryptocurrency that uses proof of stake.
Its'network houses over 2800 dApps, which makes it the most used PoS blockchain presently.
ETH 2.0 can be staked by becoming a node operator. The required number of ETH for a start is 32ETH and above.
- 2. BNB
source
The native coin for binance exchange is called BNB.
This BNB is another coin that uses PoS consensus mechanism.
There are several ways to stake BNB using Proof of stake like using a trust wallet, using BNB vault etc.
- 3. Akash Network
source
Another currency that uses Proof of stake consensus mechanism is Akash network.
This Network I built on cosmos hub.
It uses a native utility token called AKT, in securing and controlling the blockchain thereby giving way to storage and exchange of value.
There are more cryptocurrencies that uses Proof of stake consensus mechanism like raydium, tezos, decentral games, NOW. So I just decided to explain three.
Acknowledgement
First of all, I'll want to acknowledge Prof @sapwood for an amazing lecture, secondly I would really love to appreciate the fixed lecturers that goes through the fixed assignments, you guys are doing a great job.
And lastly to steemit Crypto Academy.