Crypto Academy Season 3 Beginners' course - Homework Post for Task 4: [CONSENSUS MECHANISMS] by @reddileep for Sapwood

HOMEWORK TASK - 4

Entire Question

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

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First of all I will define both PoW and PoS individually,

• PoW (PROOF OF WORK)

PoW (Proof-of-Work) is an algorithm or system that uses computing power for maintaining the blockchain. This blockchain contains millions of transaction records and the people who support this process are known as miners. This process requires powerful machines and they can benefit depending on the power of the machines. The internal process of those machines is to solve cryptographic puzzles. All of this process together we can define as PoW (Proof-of-Work)

• PoS (PROOF OF STAKE)

PoS (Proof- Of Stake) is the process of holding certain amount of coins for a certain period of time. Here block validators are selected based on the amount of coins they stake. So, they can gain benefits for the amount of staked coins and it receives as Transaction fees. It is like a financial incentive and is retained as long as the share exceeds the sum of all transaction fees.

Below I have mentioned the difference between PoW and PoS in a Table

This Table is created by me from Microsoft Powerpoint Program

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ADVANTAGES OF POW

• Anyone can get involved in the mining process and be a partner in the Proof of Work.

• Powerful mining machine owners can reap high benefits as compared to the cost of machinery

• Security of the System is very high as it is a completely Decentralized system.

• The largest cryptocurrencies have a big tendency for Pow even Bitcoin

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DISADVANTAGES OF POW

• As the system becomes more complex day by day, the power consumption increases more and more.

• If we want more benefits, we need higher performance machines. Therefore a large crowd of people need to be involved in maintaining those systems.

• In PoW, mining machines are working continuously and some of machines become inoperable. So, those machines should be replaced. Therefore, it accumulates as garbage and due to this process, environmental pollution is increasing.

• As the number of people contributing to this process increases, a gradual reduction in privileges occurs day by day.

ADVANTAGES OF POS

• No additional power consumption occur as compared to PoW

• No need additional Hardware of Software Equipment

• We can get more rewards if we increase the amount of tokens that we have staked.

• We can gain fixed profit according to the percentage of our investment.

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DISADVANTAGES OF POS

• Higher investment required to the contribution of PoS

• The validators don't receive block reward. Only, they receive network fees.

• If someone obtain 51% of the cryptocurrency, he will receive the access of the network.

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The PoS is more scalable than the PoW and it is created as an alternative option for Proof of Work (PoW). Here all the shortcomings of POW have been addressed and the environmental pollution caused by high power consumption has also been avoided.

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EXAMPLES

• ETHEREUM 2.0

Ethereum is a popular crypto and they have launched their new version which is Ethereum 2.0 instead of 1.0 Version. Here they have allowed users to join the blockchain as validators and each validator can stake some of their Ethereum to join the new system. Here we can gain more benefits instead of traditional pc mining.

• CARDANO

Cardano has also introduced Proof-of-Stake System and it is a 3rd generation Blockchain System. So, it has solved many issues in 2nd Generation blockchain by using PoS system.

This is my Homework Post for Task 4. I have cited all image sources properly and cover image is created by me.

Finally, I would like to appreciate professor @sapwood for his effort for creating very essential lessons on behalf of us.

Thank you...