The Proof of Work (POW) is the algorithm used for one purpose — to ensure the safety of blockchain networks. But does it have alternatives?
Proof-of-Work: How Does It Work?
The essence of POW is that the miner supporting the network must perform a cycle of complex and resource-intensive calculations on the equipment. The network can very quickly and easily check the result of it. POW is used in Bitcoin, Ethereum, and other cryptocurrencies. In fact, this is the main algorithm at the moment.
In POW networks, miners mine a new block. At the same time, they are competing with each other in the power of their equipment. The winner is the one who first finds the correct key answer to the problem. The main disadvantage of POW is the need for miners to always expand their computing capacity because the number of transactions increases. Otherwise, they will lose competitiveness, and the cryptocurrency blockchain will become inconvenient for users.
Bitcoin is an excellent example of this. With the current level of popularity of cryptocurrency on the exchanges like https://letsexchange.io/, transactions in it take a relatively long time. Miners are forced to unite in pools and purchase special equipment, while large investors create mining companies and build entire Bitcoin production facilities. But even with such enormous financial and energy costs, the network doesn’t work as we would like.
Proof of Stake: What Is It?
An alternative POS algorithm was offered back in 2011, but it has not found wide application so far. Noticeably fewer cryptocurrencies use it. For example, PeerCoin was the first of them. But everything may soon change because Ethereum developers have already announced the transition to POS mining and launched the necessary processes. If Ethereum succeeds and they are able to get away from the problem of network scalability by changing the confirmation algorithm, then the rest of the cryptocurrencies are guaranteed to follow it.
In the POS network, miners don’t compete among themselves to produce a new block but actually play this right like a lottery. The chances of being able to mine a block are proportional to the amount of cryptocurrency in the miner’s account. Transaction processing doesn’t require large computing power. A regular PC can easily handle them. In fact, when using POS, the miner doesn’t mine the crypt but acts as a guarantor of the transaction and receives a percentage.
The advantage of POS is that you need to own many tokens to successfully attack the network. In this case, the attackers themselves will suffer enormous losses. That is, they will play against themselves. On the other hand, such mining stimulates the accumulation of funds and makes it unequal for users with a small number of tokens. As a result, the cryptocurrency becomes centralized, and the group of the richest users dictates its terms.
This is a problem not only for POS but also for POW. After all, the owners of mining farms or large pools process most of the transactions on the network, actually controlling its operation.
Proof of Work and Proof of Stake have their place in the cryptocurrency market. It is problematic to state with confidence which protocol performs better. PoW can be blamed for generating high carbon emissions during mining, but it has been confirmed as a secure algorithm for connecting blockchain networks. However, as Ethereum moves from PoW to PoS, the system may become more preferable for future projects. Moreover, maybe there is no sense in exchanging ETH to EOS today. Think about it.