PoW vs PoS: Explanation of Blockchain Consensus
What is a Proof of Work and a Proof of Stake? A distributed or consensus agreement system means that when transferring cash from any person, there is no need to trust a third party such as a bank. Rather, everyone has a copy of the distributed ledger and can directly write their own endorsed information to the ledger, which is verified with both proof-of-work (PoW) and proof-of-stake (PoS) algorithms. In the following, you will be introduced to the process of each and their strengths and weaknesses for Blockchain
Proof of Work Explained Simply | What is the Proof of Work algorithm?
One of the consensus methods in digital currencies is the Proof of Work (PoW) algorithm, which is used to verify transactions, block production, and maintain the security of the blockchain network. The basic principle of work is solving a complex mathematical puzzle that applies a large amount of computing power to the solution, thus wasting a lot of power.
The most popular application of this algorithm is the Bitcoin network; in the security field, this type of consensus algorithm is designed as much as possible against hacking, and attacking the network requires a great deal of energy and cost, which eliminates the motivation for attacks. Extractors compete against each other on completing network transactions and getting rewards using Proof of Work or PoW algorithms. In fact, Proof of work is a protocol whose primary purpose is to prevent cyber attacks such as DDoS.
Users send digital currencies to each other on a network. Decentralized Ledger also collects all transactions in blocks. However, it is also important to approve the transactions and the arrangement of the blocks. The responsibility for this task rests with specific nodes called miners or extractors, and the process is called mining.
In the proof-of-work algorithm, all the network extractors compete to be the first to find a solution to the math problem of the block. An issue that cannot be easily solved and must be resolved with great effort. When an extractor finds an answer, he announces the solution to the entire network at the same time and delivers his reward in a digital currency based on the network protocol.
The more computing power added to the network, the higher this limit will increase, and the number of computations needed to solve the new block will increase. This will increase the cost of producing the new block, and the miners will have to improve the performance of their extraction system to make it economically viable
How does the Proof of Work algorithm run on the blockchain?
Extractors solve puzzles, form new blocks, and confirm transactions. The difficulty of a puzzle depends on the number of users, the current power, and the load of the network. The hash of each block also contains the hash of the previous block, which enhances security and prevents the block from being invaded.
If an extractor can solve a puzzle, a new block is formed. Once the new block is formed, the transactions are placed in that block, and the transactions are placed in that block to confirm their authenticity.
Where does the proof-of-work algorithm usually run?
This algorithm is used in many encrypted currencies. Its most famous use is in bitcoin, and it was Bitcoin that founded this kind of consensus. Bitcoin’s hash algorithm allows changing the complexity of a puzzle based on the grid force.
The average block formation time is 1 minute. Bitcoin-based currencies, like Litecoin, have the same system. The concept of proof of work was used even before Bitcoin, but Satoshi Nakamoto used this technique in his revolutionary digital currency, which transformed traditional methods.
Another big project that uses this algorithm is Ethereum. Knowing that three-quarters of the projects are implemented on the Ethereum platform, it can be safely assumed that most blockchain applications use a consensus-proof model.
Why use the consensus proof algorithm?
- Attack Defense: The proof-of-work algorithm applies restrictions on actions on the network. Running this algorithm requires a lot of effort. Efficient computing attacks require a lot of computing power and time. So there is always the possibility of an attack, but because the costs are so high, it is practically useless.
- Extractability: No matter how much money you have in your wallet. It is important to have strong computing power to solve puzzles and create new blocks. So owners of large amounts of money are not responsible for deciding the whole network.
The concept and function of Proof of Work (PoW) at a glance
To conduct mining or extraction operations, a group of legitimate transactions must be registered on the general ledger. Mining is done for two purposes:
- To confirm the legitimacy of transactions and to prevent repayments
- To create a digital currency that is awarded as a prize for past work by the miner.
What steps to perform the transaction:
- Transactions are brought together to form a block.
- Extractors confirm the validity of each block.
- Miners will then have to solve a math puzzle known as a PoW problem.
- The prize is given to the first extractor to solve the problem of each block.
- In the final step, the approved transactions are stored on the public blockchain.
All Miners compete to be the first to solve this math puzzle. To solve this math puzzle, a certain amount of difficulty is considered that creates a competition between the miners and adds more computing power to the network. As mining operations become more difficult, miners are forced to increase process efficiency and effectiveness, thus maintaining the economic balance of the network.
Proof of Stake Implementation | What is the Proof of Stake algorithm?
PoS is, in fact, another way to validate distributed transactions and establish agreement. The goal of PoW and PoS is the same, but the process of achieving that goal is different.
The idea of proof of stake was first introduced in the Bitcoin World Forum for the first time in years. In the year 2012, it was first used in Peercoin, followed by other currencies such as Nxt and Blackcoin.
Unlike PoW, where miners were awarded a math puzzle to approve transactions and create a new Block, PoS is the creator of a new block that chooses a definite path depending on the amount of capital is called a stake.
So there is no reward and the miners only receive transaction fees. In this way, all the desired currency units have been extracted beforehand and the number will never change. This means that there is no reward in the PoS system. For this reason, miners are also called Forgers in the proof system.
In the Proof of Work (PoW) algorithm, the more computational power you have, the more likely you are to succeed in building a block, the more successful an extractor will be with the more powerful computers, but in the PoS system, the more money or stake you have in the system the more chance you have of creating a block.
Concept and function of proof of stake (PoS) at a glance Blockchain
Proof o stake is another way to validate transactions and reach agreement across the network. This is also an algorithm and its purpose is to prove it, but the process of achieving it is different. In the proof of stake algorithm:
- There are no bonuses for solving blocks.
- On the other hand, all digital currencies are pre-manufactured and their value never changes.
- Since there are no bonuses to solve blocks, the extractors are given transaction rates.
- For this reason, the extractors in the proof of stake protocol are called forger.
Every computer system should be safe from hacker attacks, especially if it is related to payment services. So the key question is: Is PoS more secure than PoW? Experts are worried about it and there is skepticism among developers. Using the PoW system, despite the many problems, security is truly guaranteed. In fact, planning an attack on the PoW network is very expensive and requires more capital than the total value of the currency to steal the coins. In the PoS network, a cyberattack can be much cheaper and easier to do. To solve this problem, the Casper Protocol was created, which eliminates problematic people. If you are planning to convert or cash your digital currency or plan to buy and invest in one of the digital currencies, the expay24 team of experts can help guide you through this. For more information, please contact us.