If you are interested in securing a blockchain network, then a proof of work system is probably the best option for you. This is because miners need a ton of computing power and electricity to be able to secure a blockchain network. Proof of stake is better environmentally. We explain the pros and cons.
There are a lot of misconceptions about cryptocurrency and its respective mining process. When you hear the word “mining,” your mind probably goes to Bitcoin and other high-profile coins. However, mining is actually an essential process in the creation of new digital currencies.
Mining is the process of spending computing power to process transactions, secure the network, and keep everyone on the same page. Both proof-of-work (PoW) and proof-of-stake (PoS) are forms of cryptocurrency mining. However, they serve very different purposes and have different characteristics. If you are planning to get into the world of cryptocurrency, it’s important to understand the differences between them.
This article covers the main differences between PoW and PoS, their pros and cons, and when you should choose which one to use. Read on to find out more.
Mining is the process of creating new Bitcoins and other cryptocurrencies by using computer power to solve complex mathematical equations. The first miner to successfully solve these equations and generate the required amount of “proof of work” wins the block and gets to place the next block on the blockchain. This is verified by the rest of the network, and the miner is rewarded with cryptocurrency tokens.
There are two main factors that determine how much cryptocurrency you’ll mine:
The mining difficulty - This is determined by how much computing power is added to the mining equation. As more people mining and mining equipment is added to the equation, the harder it will be to find a solution.
The proof of work system requires miners to solve difficult mathematical equations in order to complete each block and add it to the blockchain. This process requires immense amounts of computing power and electricity, which are costly.
To be able to solve these equations and generate the required amount of “proof of work,” miners must use special software and hardware. They generally use custom designed computers that feature multiple processing units and GPUs. These computers are then connected via a high-speed network.
In a proof of stake system, the users with the most coins hold the most weight in the network. As such, they have the power to validate new blocks and add them to the blockchain. The validating nodes are, therefore, the most secure and reliable ones in the network.
Unlike proof of work systems, where the more computing power you have, the more chances of securing a block, both proof of stake and proof of work systems award tokens to those who hold a certain amount of currency, rather than processing power.
The main difference between proof of work and proof of stake lies in the way they generate new coins. While both systems require miners to solve complex mathematical equations, only proof of work miners get rewarded with tokens.
In proof of work systems, miners that successfully verify a block get rewarded with new tokens. However, in a proof of stake system, the nodes that validate blocks are rewarded.
Another difference between the two types of systems is that in a proof of work system, the more computing power you have, the better chance of securing a block. However, in a proof of stake system, the more coins you hold, the more chances of securing a block.
Compared to proof of stake systems, proof of work systems have these advantages:
More security - Since the coins in a proof of work system are generated by the network itself and are determined by the rules set in place at the start, they are inherently more secure than those in a proof of stake system, where the coins are centrally controlled by the entity running the confirms the transactions.
Compared to proof of stake systems, proof of work systems have these disadvantages:
More costly - Not only do you need a lot of computing power and electricity to run a proof of work system, but it also costs money to run these systems. You’ll need expensive equipment, such as custom-built computers and powerful GPUs, to be able to compete in the mining process. This is why you won’t find many people mining proof of work coins.
Compared to proof of work systems, proof of stake systems have these advantages:
More cost-effective - Since the validating nodes in a proof of stake system are chosen by those with the most coins, it costs absolutely nothing to become a node. This, therefore, means that anyone with a computer can become a validating node, which greatly reduces the overall cost of running a node.
Compared to proof of work systems, proof of stake systems have these disadvantages:
More centralized - Since the validating nodes in a proof of stake system are chosen by those with the most coins, they are also inherently more centralized than their proof of work counterparts. This is because a few entities are able to determine who gets to be a validating node.
The decision of whether to use a proof of work or a proof of stake system entirely depends on your individual circumstances.
If you are interested in securing a blockchain network, then a proof of work system is probably the best option for you. This is because miners need a ton of computing power and electricity to be able to secure a blockchain network.
