Different types of Consensus Mechanisms - Steemit Crypto Academy Season 4 - Homework Post for Task 6
Hello, dear steemians. I am very glad to participate in this homework task 6 which is about Different types of Consensus Mechanisms by professor @sapwood. Let's start.
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QUESTIONS
| (1) | What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples? |
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What is the difference between PoW & PoS?
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Before discussing the differences between PoW & PoS, we should first know about the concepts of both of them. Let's know what is PoW & PoS first.
Proof of Work(PoW)
It is used to confirm transactions and create new blocks in a blockchain. It is a consensus algorithm in a blockchain network that was first developed in 1993. There is a reason for using this POW algorithm that is to get security for the system network from any kind of hacking or cyber-attack. Bitcoin could be a successful example of PoW.
We know that blockchain systems are decentralized. So, there is so much complexity in verifying transactions made in this system. The PoW consensus mechanism has resolved this complexity and make it a strong security system.
It uses the principle of mathematical puzzles which is used to solve a complex puzzle. When the puzzle is solved by a minor, the transaction is stored on the network. After a valid transaction, the miner is rewarded who has solved the puzzle successfully.
Proof of Stake (PoS)
PoS is a method of validating transactions. It was first mentioned in 2011 on the Bitcointalk Forums. It was described as a mechanism that is more efficient than using PoW Consensus.
In PoS Consensus, there is no need for puzzle-solving like PoW. Here a new block is generated randomly. This randomness is based on the amount of investment. The people who create a block are rewarded.
PoW is quite energy-efficient compared to PoW. Because there is no need for powerful computer equipment for mining. The users have to lock some of their tokens and they are rewarded with transaction costs as a reward for their staked tokens.
Differences between PoW and PoS
| Purposes | Proof of Work(PoW) | Proof of Stake (PoS) |
|---|---|---|
| Definition | Where the miner mines the token in the blockchain network and gets rewarded by verifying the transaction is called PoW Consensus. | Where the users hold their tokens as investment and get rewarded for that is called PoS Consensus. |
| Energy Usage | PoW Consensus requires powerful computer equipment for mining | There is no need for powerful computer equipment in PoS Consensus |
| Mine/Stake | In PoW the users have to mine by solving complex puzzles | In PoS the users have to lock some of their tokens as an investment |
| Reward | The miner of PoW are rewarded when they solve puzzles and create a new block | The users of PoS are rewarded for their investment as transactions fees |
| Efficiency | PoW algorithm is a bit slower and higher cost-effective because of costly hardware needs and hardware that consumes too much electricity. | PoS is much efficient than the PoW and less cost-effective because there is no need for high power-consuming hardware. |
| Security | PoW makes blockchain networks highly secured and very costly to attack by miners. | Sometimes PoS is considered centralized and that is less secure. |
Advantages of PoW
The miners of PoW get rewards after a successful validation.
It solves the very difficult types of complex puzzles and creates the new block that is added to the pool.
If the users have a higher hash rate of power they can mine new blocks more rapidly.
Because of decentralization, it controls the activities performed using cryptocurrencies.
PoW is highly secured because of the complications attached so that it is very difficult for miners to attack.
Disadvantages of PoW
PoW requires powerful computer equipment for mining which is very costly.
It consumes a high amount of energy that is also costly for the miners.
It is a system where rich miners have the advantage of winning rewards than a less powerful miner.
There is a high amount of transaction fee is required in PoW. It is the gas fee which is really high sometimes.
The transaction completion process is very slow and time-consuming because of slower block production.
Advantages of PoS
The major advantage of PoS is less consumption of computing power.
The transaction process of PoS is very fast.
It gives mining power regarding the percentage of coins owned by a miner that is higher they stake higher they get chance.
The price of a coin or token is less volatile in PoS as compared to PoW.
In PoS, the reward is given to miners after a successful validation.
Disadvantages of PoS
In PoS, it is not possible to sell and stake coins at the same time.
If you have limited tokens, it will be difficult to participate compared with big companies.
There are limitations of liquidity in PoS.
The users have to be rich before using PoS. Because the high amount of investment means the high amount of return.
The more centralization of PoS is considered a big disadvantage for security purposes.
Which one is better in scaling Capacity?
Scaling capacity could be described as the required time of transactions in the blockchain. Scaling capacity could increase the number of verified transactions per minute.
I have explained about proof of work and proof of stake briefly. From the explanation, I could say that Proof of Stake is more better in scaling Capacity. Because it reduces the risk of centralization & has the flexibility and fastest transaction method.
Examples
There are many blockchains that adopt the Proof of Stake rather than the Proof of Work. As I said above PoS is much better in scaling capacity. I am including some of the examples of PoS blockchain networks.
ETH 2.0
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At present, Ethereum is one of the most popular cryptocurrency that uses the PoS mechanism. There are more than 2800 Dapps under the Ethereum network. For that, it is being popular day by day. The current price of ETH is $3526 right now at Bittrex. To become a full validator on the Ethereum ecosystem, you should have a minimum of 32 ETH.
CARDANO
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Cardano is another decentralized blockchain network that adopted the POS mechanism. It was founded by Charles Hoskinson in 2015 who is a co-founder of ethereum. Their token name is Ada. The current price of Ada is $2.22 now at Bittrex.
BNB
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BNB stands for Binance Coin. It is a native currency of the Binance exchange that was created in July 2017. BNB has also used the PoS consensus mechanism. The current price of BNB is $414.78 now at Binance.
Conclusion
Before answered all the questions I have read the lecture given by the professor @sapwood. I also analyze the Consensus Mechanisms on the web. After that, I have written this homework task 6 here. I have learned many new things here. I really want to thank professor @sapwood for arranging this informative homework task.
Please review this post. Comment here your feedback. Thanks for reading this post.