WHAT IS POS AND POW IN CRYPTOCURRENCY?

Posted on October 25, 2018

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.