Cryptocurrencies use two consensus mechanisms to verify new transactions, add them to the blockchain, and create new tokens: “proof of work” and “proof of stake”.
To secure transactions, networks use a consensus mechanism – a system that helps all the computers on a crypto network agree and determine which transactions are legitimate.
“Proof-of-work” – the first consensus mechanism, used in Bitcoin,Ethereum 1.0, Dash and other altcoins.
“Proof of stake” – emerged later and is used in Ethereum 2.0, Cardano, Tezos and others.
“Proof of work” – how does it work ?
source: Levelupgitconnected.com
The network requires a very large amount of processing power to operate. A “proof-of-work” blockchain is linked to miners, who check it and make it work. The miners solve mathematical problems, and the first one to succeed is rewarded with cryptocurrency, the amount of which is predetermined.
The winner also has the opportunity to update the blockchain with the latest verified transactions.
“Proof-of-work” is a reliable and proven way to keep the blockchain secure. The more miners that join the network, the more secure the network will become. However, the process of accounting for the transactions that blockchains can generate is extremely energy intensive.
Therefore, there was a need to create an alternative, and the most sought-after alternative was the share proof mechanism, which made transactions cheaper and also significantly reduced the amount of energy consumed and increased the speed of transactions.
“Proof of stake” – how does it work ?
In a proof-of-stake system, stacking is when a network participant is selected to add the last batch of transactions to the blockchain and receive cryptocurrency in exchange. That is, stake proof stacking performs the same function as proof-of-work mining.
Cryptocurrencies Ethereum 2.0, Cardano, Atmos, Tezos use the “proof-of-stake” mechanism, which allows for maximum transaction speed and efficiency, and the price of commissions is lower than in the “proof-of-work” system.
The general principles of the proof-of-stake project are as follows: validators contribute cryptocurrencies in exchange for a chance to get the right to confirm a new transaction, update the blockchain and get a reward for it. The winners are chosen by those who are more invested in the project, the pool of cryptocurrencies of each validator is evaluated, as well as the period during which the cryptocurrency was in the account .
After the winner confirms the last block of transactions, the remaining validators confirm the validity of the block. The network updates the blockchain after a threshold number of validator confirmations is reached. All who participate are rewarded based on their share and in their native cryptocurrency.
To become a validator, it is necessary to have a high level of technical knowledge and to have the necessary starting minimum of cryptocurrency: 32 ETH for Ethereum 2, for example.
If the validator makes a mistake and confirms a wrong transaction block, or if their node goes offline, they can lose part of their investment, this scenario is called a slash.
However, an ordinary investor can also participate in bets by delegating the management of their assets to professionals. Many exchanges offer financial instruments that make this process easier.
Differences between proof of work and proof of share.
source: BitDegree
The main difference is energy consumption. The proof-of-stake blockchain does not waste energy on duplicate processes, such as solving the same puzzle with a large number of miners.
Both mechanisms have economic penalties for network failures.
In “proof-of-work” for malicious miners it is a sunk cost of time, computing power and energy. In proving a bet, if the validator accepts a bad block, part of the money is withdrawn in the form of a fine.
Conclusion
The “proof-of-work” or “proof-of-stake” argument will always divide people, but the fact that Ethereum 2.0 switched to proof-of-stake tipped the scales in its favor.
Read also Roblox: Record Decline In Share Price. Analysts Review.
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