What is Proof of Work?

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The first is Consensus Algorithms called Bitcoin.

Let us understand this with an example - if you are given to solve a puzzle with millions of people, and it is said that whoever solves that puzzle will get Reward, then surely you will be able to solve that puzzle.

This is how Proof of Work works - in which all the Miners are competing to Solve Mathematical Puzzles, and the Miner who solves it gets Reward.

Miners' job is to solve Mathematical Puzzles, find new blocks and add them to the chain as well as validate each Transaction.

A new Block is created in every 10 Minutes. The more Miners there are, the harder the puzzle is. Mining Difficulty is adjusted every 2 weeks.

Powerful Miners do not always win, the game is always like a lottery, which prevents the system from being centralized by the Mining Pool.

 

 

Mining pools:

 

Mining Pool means one such Mining Unions - When Many Miners Mining by Making Pool.

Concept: Who participate in the mining process, Dividends are given for their Contribution of Computing Powers.

For Example - If Pool creates a block, then all participating participants are given Dividend / Profit based on the Computing Powers provided by them to solve Mathematical Puzzles.

 

Disadvantages of POW

However, it is the most Secure and Reliable Blockchain. But it has the following drawbacks: -

1.  Only one gets Reward, but a lot of Miners' Energy Wastage takes place behind Solve.

 

2.  The risk of attack increases by 51%, which is a major threat to Decentralization.

 

3.  There is a problem of scalability (Transaction Per Second is very limited)

Proof of Stake

Therefore, the "Proof of Stake" mechanism was introduced to remove these shortcomings of Proof of Work.

 

PoS has been developed to improve Bitcoin's expensive algorithm.

 

Here the Miners are replaced by Validators, from which Randomly Node is chosen, and the rest of the Validators do not have to work hard and have no resources.

 

Basically there are no miners in it, only a validator has to be made by keeping the Coin Stake (mortgage).

 

The more Staking Coins a person has, the more likely they are to be selected as Block Validator (also known as Minter or Forger).

 

And they take Network Fees to validate the Forgers - Transaction.

Major Crypto based on Proof of Stake Algorithm:

ATOM   TEZOS        WAVES       NEO       VET        TRX       ADA

How does POS work?

 

If you want to validate Transaction through POS, then its following procedures are -

 

·       You have to keep their Coins in a Specific Wallet.

·       They are used to take Coins Network, so that Wallet freeze your Coin.

·       You need Specified Numbers of Coins to start stacking.

·       For which a Huge Investment is required.

·       Example - If you want to validate the Transaction of Ethereum in the coming days (because in the future, Ethereum is migrating to POS)

·       According to this example, Current Ethereum Price = $ 230

·       Minimum Requirement = 100 Ethereum ($ 230 * 100 = $ 23000).

·       If you want to earn Proof of Stake Reward by placing 100 Etherum Stake -

o  As if the total Circulating Coin of Etherum is 1000.

o  You bought 100 Etherum and put it on Stake.

 

Benefits of POS

The following benefits of Adopt POS Algorithm are:

 

·       No need to spend huge amounts of electricity to verify the blockchain (is eco-friendly).

 

·       It does not require heavy resources like POW, so more people can participate in POS.

 

·       51% avoids attack, so that there is no risk of centralization (as it requires 51% ownership of Existing Coins, and there will be huge financial loss from Failed Attack).