Cryptocurrency is now no more a new concept in society. Almost everyone knows the basics of cryptocurrency. While dealing with details about cryptocurrency, you might have heard about the blockchain technology and the Proof of Work in this context. It is not the only technique that is used for blockchain; there is another procedure which is called as Proof of Stake, is also used. As POS is derived after the PoW so, it is thought that it has solutions to many problems that are part of Proof of Work procedure. Let’s evaluate both the procedures and find out which is the most favorite for future pursuits.
Proof of Work
The protocol used for the PoW is not new and also not invented by Satoshi Nakamoto. It was the idea by Cynthia and Moni Naor who present the concept in 1993, and the primary target was to discourage the cyber attacks. The term Proof of Work was first time published in 1999; however, it was not the idea behind the cryptocurrency concept of Satoshi. It is a method to generate a consensus between distributed parties which are connected to a network.
Proof of Work is a technique to secure the system as no one can assure the honesty of everyone in the network. In this system, the miners have to work for the validation of transactions coming in the system and record them in blocks. All the miners in the system work to validate the transaction by solving a cryptographic problem. Who finds the solution, first of all, is declared the successful miner and get a reward in the system.
Problems in PoW
Although it is a necessary procedure that is adopted for the mining of coins, it also has some drawbacks. The major disadvantage is the large expenses. As we have discussed that every minor work to solve a cryptographical puzzle by running complex algorithms, it requires highly efficient and fast hardware. Because of this requirement, it becomes impossible for everyone to mine the coins. Another factor that enhances it more is that with the increase in the number of miners, the cryptographic puzzles become more and more difficult. The massive expenditure of mining creates a mining pool that will become responsible for transaction validation. It means that centralization will enter the system that is opposite to the basic idea of decentralization of the system.
Secondly, there is a massive loss of energy. A large number of people work to solve the puzzle, but only one becomes successful. Now the rest of people have to begin again from the start, and all the energy and time used in the previous work become waste. Furthermore, the blocks that are created after complex computations cannot be used or implemented anywhere else. This uselessness is another disadvantage.
Proof of Stake
This procedure is also used to validate the transactions in the system. Miners work to validate a block in the system, but no one can do all the validation work. Everyone can verify according to the proportion of his holdings in the total amount of cryptocurrency. For instance, if a miner has 5%, then he will be eligible only to validate the 5% of the block. In the PoS system, the miners are not awarded with coins. Instead, they receive a transaction fee for every transaction.
This approach also eliminates the risk of 51% denial of service attack. For having the rights for 51% computation in the validation process and control of transactions, it’ll be necessary to have a 51% share of the cryptocurrency. And if a user has 51% shares in the coin, it wouldn’t be in his favor to attack the system. Additionally, the large shareholder of currency will get a significant incentive in the form of fee and be more responsible for a more secure system which is definitely in his own benefit.
The PoS approach addresses many of the problems that are faced in the PoW approach. In the PoS system, the miners are called forger because they are not awarded with coins for their validation procedure, and also they do not validate the whole block. Because of the benefits of the PoS system, many existing and new altcoins prefer it. The switching from PoW to PoS has many benefits. Nexalt, one of the newly emerged altcoins, also implements the PoS procedure to enjoy the benefits in their full swing. The significant advantages are as follows:
- Saving of energy, because only the selected forgers participate in validation procedure and solve the puzzle up to a percentage. It does not require extra computational power and energy to be consumed.
- It uses the CASPER for security purpose. If a user wants to buy the 51% of coins or to participate in the validation procedure, he has to deposit some amount as security that will be deleted of vanished if he creates an invalid block. It also restricts him for accessing the network. The system becomes more secure.