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QUESTIONS
WHAT IS THE DIFFERENCE BETWEEN PoS & PoW?
ADVANTAGES & DISADVANTAGES?
WHICH ONE IS BETTER IN SCALING CAPACITY? EXAMPLES?

In a blockchain different transactions are carried out on the network and they are not connected by any official body. We ask ourselves how does this network validate these transactions and source the ones that are true and honest. All blockchains need a ledger that records there shared information. How this is done is Consensus Mechanism.

What is Consensus Mechanism?

Consensus Mechanism is a system that ensures which records are true and honest. In a centralised system the central head has the original copy of the ledger and notices his staff about changes to the ledger, but there not trustworthy and prone to cyber attack. They are protocols that make sure all nodes on the network are connected and agree on transactions that should be added in the blockchain.

Types of Consensus Mechanism include

• Proof of Stake (PoS)
• Proof of Work (PoW)

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Proof of Work

Thid is a type of Consensus Mechanism where miners compete against each other to solve a mathematical equation, in 2009 bitcoin used mining to run their currency, then it required less processing speed and everyone was allowed to mine but now a higher processimg speeds is required. Proof of work can be described as a treasure box that is locked, Miners are the treasure hunters, the first person that cracks the lock will be rewarded with a specified amount of crytocurrency. The winner has the authority to group new transactions into new blocks and awarded bitcoin. Typical examples of proof of work is Bitcoin and Ethereum. Proof of Work is used to reach a consensus between many nodes in a blockchain. PoW rewards miners with more equipment/ processor speed, the higher the miners' hashrate, the more chances of winning. Therefore miners with same goal come together to form Miners Pool, these a group of miners that mine together and later share the rewards evenly among themselves.

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Proof of Stake

This is a type of Consensus Mechanism that ask Validators to stake a specific amount of crytocurrency for rewards, it was first introduced in 2012. For instance if there is a treasure chest, the validator that has the highest stake, will be rewarded with crytocurrency. Some examples of crytocurrency that uses PoS is Cardano and EOS. The size of the stake determines the possibility of a validator to chosen.Validators will lose a significant amount of crytocurrency if they approve fraudulent transactions. The stake should higher than the transaction fees. If one decides to stop being a validator, all his stake and transactions fees will be given back to him after a period of time. PoS judges the validator based on amount of stake and the time he has held that particular crytocurrency.

Advantages & Disadvantages

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Advantages of PoW

• Power & Security: as the worth of crytocurrency grows more miners are willing to join the system, thus providing a sense of security and increase the power and effectiveness of the system

• Improves Healthy Competition among miners: Miners are rewarded based on the solving of a mathematical codes thus this may Improve Competition between miners to race to be the best at what they do.

• Doesn't need any Third Party: the PoW database is protected thus preventing any offical body from messing with miners information or records.

• It reduces risk of doule spending: this simply means it reduces the risk of using a crytocurrency that has already been deduced twice.

Disadvantages of PoW

• Slow : due to the fact that transactions are carried out from minning, they require a huge amount of processing power to carry out. Any miner that doesn't have the processing power would find difficulty in mining and slowness of network.

• Energy Consuming: minning activities are done on super computer, this take a toll on electricity consumption and increase the cost and consumption of power.

• Miners Pool make PoW a Centralized system: A centralized system is one that is connected by a central authority, a Miner Pool is a group of miners in a blockchain that mines a particular crytocurrency. This pool has hierarchy of authority thus defeating the aim of being a centralized system.

• Inefficient: In PoW a miners pool may approve fraudulent transactions and be involved in fraudulent activities to gain profit.

• It is expensive to run: because it not everyone that can afford high processing devices.

Advantages of PoS

• It is less energy Consuming: because of PoS just picks one validator to approve transactions and form a new block. It doesn't require alot of energy for mining as compared to PoW.

• Less Expensive to setup: PoW requires high processing speed system, but in PoS although validator stakes his money, to set up PoS is less expensive because high processing systems are not needed.

• Allow Validators to form a new block thus giving the sense of a decentralized system: a decentralized system is one that is not run by any official body.

• More Secure: The validator is the only one that approves transactions and he is punished by lossing some of his assets, if any fraudulent activity is approved.

Disadvantages of PoS

• Improves the poverty margin: favours the rich more, because Validators are selected based on amount of stake.

• There is 50% chance of Attack: because the authority in PoS is based on the validator therfore a particular validator can keep on being picked due he controls all the funds in the blockchain. When every a validator owns more than 50% of the blockchain he basically controls the fate of that crytocurrency, therefore any change in prics would depend on his transactions in his wallet.

• Less profitable: the reward gotten from minning is significantly greater than the amount of reward gotten as a validator in PoS.

• Transition from PoW to PoS is hard due to technical difficulties.

What is the difference between PoW & PoS?

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Some Basic Differences between PoS and PoW

PoS	PoW
Doesn't allow everyone to mine	Everyone is allowed to mine
The Network is more decentralized because there are not alot of people used to make up a node	The network works with mining pools that makes the network seem like a centralized system
Doesn't consume alot of energy	Consumes heavy amount of energy from miners
Crytocurrencys are staked and the highest stake run a new block	Crytocurrencys are mined and the miner that solves the mathematical equation is rewarded with a specific amount of crytocurrency.

Which one is better in scaling Capacity? Examples?

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Scalability is the ability of a cryptocurrency to withstand or control a large number of transactions at a particular time. For example, Btc is said to operate smoothly at 7 transactions per second and Xrp is more fast and scalable when compared to other tokens.

In terms of PoS and PoW which is more scalable?
For example,the PoS is more scalable because it requires a low energy as compared to PoS. The validator is rewarded based on how much stake he has put into the system and the transaction fees for the transaction. There is no mining required in PoS making it fast and efficient to carry out. PoS validates a higher amount of transactions per minute than any miner can mine in a PoW. Examples include; DASH, TEZOS, NAV

Conclusion

The world of crytocurrency is constantly advancing and this assignment has made me to understand what Consensus Mechanism means and what the importance of PoS and PoW. I would like give special regards to professor @sapwood for this wonderful assignment.

Thanks for reading.