SteemitCryptoAcademy Season 4 Beginners' course - Homework Post for Task 6: PoS and PoW
What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?
What Is Proof of Work (PoW)?
Proof of work (PoW) is a type of minimal cryptography in which one party (the prover) proves to others (the verifiers) that a specified amount of programming effort has been invested. It is a decentralized consensus algorithm that requires users of a particular network to solve mathematical problems in order to prevent anyone from having access to the system. It shows a system that allows a significant effort inputed to deter frivolous usage of the computing power like sending spam emails or introducing denial of service attacks.
PoW was adapted by Hal Finney in 2004 to secure digital money using the SHA-256 hashing algorithm. This concept forms the basis for other cryptocurrencies and allows security and a decentralized consensus. Consequently, Bitcoin and other cryptocurrencies transactions can be processed with the need for an intermediary in a secure manner with peer-to-peer. It requires a lot of money which rises as more miners become part of the network.
Example of PoW
PoW demands a computer to randomly perform hashing functions till a correct output with the required leading zeros is gotten. To illustrate, the hashcode for a block #77000 mined on the 21st day of August, 2021 is 000000000000008edhef078f12c69a439dde30dbb5d9d9445c18f6.2. The block reward for this hash will likely give 5.12 BTC (N/B this is a formulated example).
Advantages of Proof-of-work
Some of the major advantages of Proof-of-work are as follows;
The complex model makes difficult to penetrate and expensive to attack because a long complex calculation and high computing capacity is needed.
It also impacts the small proportions of cryptocurrencies owned by miners.
It gives the miners reward in block and a proportion of transaction fees. More so, it is important to have a better computing capability to find solutions to problems and create new blocks irrespective of the amount of the money found in the user's wallet.
It usually creates more decentralized networks
Disadvantages of Proof-of-work
Proof-of-work demands access to feasible computational power is a greater percentage becomes useless after an equation is solved.
There is excessive energy consumption which invariably leads to an increase in costs and environmental issues.
As newly minted cryptocurrencies near the capitalization, there is a long-term disincentives to mining.
What is Proof of Stake?
The Proof of Stake (PoS) is a consensus algorithm that runs on the ability of a person to mine and validate blocks transactions based on the number of coins he holds. That is to say that more mining power is given to a participant based on the number of coins he owns.
This mechanism was created as an alternative to Proof-of-work so that miners no longer have to sell their coins to foot the bills of the energy consumed but can confirm transactions and create new blocks based on the proportion of coins he holds. Unlike PoW, PoS is less risky for an attack.
Advantages of Proof-of-stake
It encourages scalability, decentralized and security of the Ethereum network.
It consumes less energy especially when compared to Proof-of-work.
It is easily accessible and anyone can participate as no expensive hardware is needed
There is better transaction speed and up to 100,000 transactions are carried out per second. Moreso, network transactions are less expensive and faster at a reduced gas costs.
It increases the requests for ETH because users are rewarded for staking and all make use of ETH in decentralized finance applications.
Technical know-how is not needed in participating in staking and offers rewards to nodes that stake their cryptocurrencies.
Disadvantages of Proof-of-stake
A coin cannot be sold once it is staked until the stipulated time has elapsed.
It is fairly new and its security has not been fully proven and this makes it susceptible to low-cost attacks.
The reward for staking is relatively lesser than that of mining.
Participants who have more coins have an advantage and influence on the consensus system.
It results in a less decentralized network.
What is the distinction between proof-of-work and proof-of-stake?
| Proof-of-work (PoW) | Proof-of-stake (PoS) |
|---|---|
| The miner's capacity to mine a block is determined by the amount of computational labor he or she performs | The quantity of coins a person has determines whether or not a new block is valid. |
| The first miner to solve a cryptographic problem in each block is handsomely rewarded | The validators of a block do not receive a reward; instead, they are compensated by the network charge. |
| To add each block to a chain, miners must compete in solving hard riddles | An algorithm chooses a block maker depending on the number of stakes, which eliminates competition. |
| To add a block to the network, network hackers must have more than half (51%) of the computing power | Hackers will need access to more than 50% of the cryptocurrency network, which is nearly impossible. |
| This uses more energy but is less expensive and more reliable | It uses less energy, it is more expensive and less proved. |
| It optimizes processing power through the use of specialist equipment | It makes use of a server-grade unit. |
| Purchasing hardware is usually the first step | The initial investment is usually in purchasing a stock and establishing a reputation. |
| Bitcoin employs the SHA256 Proof-of-Work consensus algorithm | PoS is used by some cryptocurrencies such as EOS (EOS), Tezos (XTZ), Cardano (ADA), Cosmos (ATOM), and Lisk (LSK). |
Which is the more scalable option?
Proof-of-stake is more scalable than Proof-of-work. The reason for this is that the latter has a faster transaction speed, capable of 100,000 transactions per second, whilst Proof-of-Work only manages 64 transactions per second.
Conclusion
Proof-of-work is a decentralized consensus mechanism that requires users to solve mathematical problems in other to prevent unnecessary access. On the other hand, proof-of-stake runs on a system that allows users to validate transactions based on the number of coins he possesses. PoW uses more energy and less expensive whereas PoS is more energy efficient and expensive.
PoS is actually more scalable than PoW as it performs more transaction than the latter.
Cc: @sapwood