Getting
to know new things about cryptocurrency is quite important if only you’re
passionate about investing in it. There are several terms associated with
cryptocurrency. In this article, we’ll focus on what POS and POW is.
Similarities and differences between these two terms in cryptocurrency would
also be looked into. Let’s start off by discussing POS.
What is POS?
POS
is the acronym of Proof of Stake. In this article, we’ll focus on NEO as our cryptocurrency though everything
stated here is also applicable to other coins that uses the same mining method
as NEO. Proof of Stake is a system or algorithm used for validating
transactions within blockchain networks. Proof of Stake is designed to work based
on priority. The algorithm is based on selecting the creator of the next block
via various combinations of random selection and wealth. This implies that the
person with the major number of coins would be given the priority to mine coin
or validate block transactions. If it happens that the person with the highest
number of coin never changes over years, then he/she will be the only one
mining the coin. This is more like centralizing coin mining.
Proof
of Stake was developed to take over Proof of Work so that miners would be
limited to mining a percentage of transaction which is reflective of their
share in the available coin. This implies that if you have 5% of the NEO
available then you can mine only 5% of the next block. The most important
advantage of proof of stake is that it cuts out the usual high energy required
for mining through solving complicated cryptogenic puzzles in Proof of Work. Proof
of stake also minimizes the level of potential attacks on the performance of the
coin. In proof of stake system, not all the coins would be mined at once since
no single person owns all the digital currency.
What is POW?
Proof
of Work is the oldest concept that has been used for mining cryptocurrencies. In
this system, miners would be required to solve cryptogenic mathematical puzzles
and once this is successfully done, the miners would be rewarded with coin. This
method of mining is highly energy-intensive. Proof of Work would tell if the
blocks already mined by miners are the same blocks present across the network.
Proof
of Work system is used to confirm cryptocurrency transactions and produce new
block to the blockchain. Unlike Proof of Stake where mining is done based on
you’re the number of coins you have, Proof of Work requires serious competition
among miners to complete transactions on the network and get rewarded. The mathematical
puzzle involve in Proof of Work concept is very complicated and takes a lot of
time before it can be solved. If the puzzle is quite easy which is so unusual,
then the network is prone to attack or spam. Proof of Work system is an
advanced security option on its own as serious effort is required to place the
next block in the blockchain. A lot of
computational power, time and energy is required to solve the puzzle. With
this, it is rare for hackers to raise attack on the system since much
dedication and huge amount of money is required for it. In Proof of Work, coin
mining is not controlled by an individual.
Comparison between POS is Quite
Better than POW
Having
known what Proof of Stake and Proof of Work is, and how they work. To some
extent, it should be clear to you that Proof of Stake is quite better than Proof
of Work. To have a clearer view about that, we’ll do a little comparison
between Proof of Stake and Proof of Work. Let’s start off by discussing the
resources required for mining under both systems.
Resources
This
is one of the most glaring advantage Proof of Stake have over Proof of Work. Proof
of Work requires a lot of resources ranging from massive computational power to
high energy requirement and time. Proof of Stake requires high performance
computers to solve complicated cryptogenic puzzles before coins can be mined.
Security
When
we talk about security, both systems are strongly secured but there is more
advanced security option with Proof of Work. It is very difficult to hack into
the network of Proof of Work as it requires serious effort, computational power
and much time to solve the required puzzle. On the other hand, it is so unusual
to intrude Proof of Stake network because you’re required to have a larger
percentage of coin before you can have the authentication to mine. Someone
would larger percentage won’t of course attack the network again.
Price
Volatility
Unarguably,
the cost of mining bitcoin is very expensive and this is what prompt miners to
sell their rewards at high prices. To some extent, price of cryptocurrencies
mined by Proof of Work is expected to be higher than that of POS. Well, the
price is also a function of demand. If there is high demand for the digital
currency, the price would go up and vice versa.
Conclusion
Proof of Stake and Proof of Work are both
systems used in mining cryptocurrencies. Bitcoin mining is based on the concept
of Proof of Work. These two concepts are basically what every cryptocurrency
investors should know.
