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Proof of Work vs Proof of Stake

When it comes to the way that crypto currencies work, there are two ways in which they are currently “mined,” or minted: proof of work and proof of stake. Each of these is different in how they work and what they are intended to do, and as we move on and evolve the crypto scene, we will probably be seeing new adaptations of these two systems. With that said, this article is going to focus on the two that we currently use. The goal is to help better understand what they each are and why they are different, as well as the importance of them. Please note, however, that this is going to be a pretty high level view; we are not going to deal with the technical specifics of each, as that is a pretty long discussion in itself!

A Look At Each One

First off, let us take a look at each of the two systems, and an example of a coin that implements them.

Proof of Work. Pretty much all coins have implemented some form of Proof of Work scheme, being that it is how Bitcoin is minted and most alternate currencies are in some way or another a fork of Bitcoin. Essentially the way that the proof of work scheme works is by using computing power to help solve intense mathematical equations to come up with a solution that ends up “solving” a block of transactions. After this, it is pushed through the network to be verified.

What is important to note here is that finding the original solution to the block is what takes the computing power. Verifying the result is simple. Much like we can plug numbers in to our calculator to see if our answer is correct, the computer can do the same thing. As such, verifying takes almost nothing to get done. When we use the term “mining,” it is the proof of work scheme we are dealing with. It is also what we use the GPUs and ASICs for, as well as CPUs for some coins.

Examples of this are pretty much all of the coins that are out, including Bitcoin itself. Most coins rely on miners using specialized hardware (or specialized programs, in the case of using GPUs and CPUs) to do the mining.

Proof of Stake. Proof of stake is very different from proof of work in that it uses almost no resources at all. Much like when the system is trying to verify a transaction that has already been solved on the proof of work systems, proof of stake runs almost identically (at least to the end user). In fact, both systems are even solved in the same manner: by having the client run on any machine!

The positive part of the proof of stake model comes from the fact that most coins (if not all) that have it implemented offer up “interest” earnings based on how many coins you have released to be put in to the proof of stake blocks. The amount of interest earned is based on how many coin days are destroyed, which essentially just means that you earn it based on how many days you have held your coins, in proportion to the interest rate that is being offered by the coin in question. This helps create an incentive for keeping the client running, which in itself helps generate more blocks.

A great example of this coin is Growthcoin. It offers up a 100% interest rate (APY) on all coins you put up for staking. The coin did die down at one point, but there are some people working to get it resurrected. It is hard to tell what its future is going to be like at this point, but this is the best example I can think of to help explain why proof of stake can be an awesome thing to have!

Why Proof of Stake Matters

If you were following along, one of the good things about proof of stake is that it uses almost no energy. Just by having the client up and running, you are already working towards getting some blocks solved. The importance of this comes from the fact that because it is so easy to do and uses no electricity (or at least, not enough to matter) and does not require any specialized hardware, it increases the number of people that are doing it, which helps decentralize the currency even more than it would be with just proof of work. On top of this, it helps get transactions through the system even when people are not using their hardware for actual mining. For any coin that wants to last for the long run, and wants everyone to be able to participate, this is pretty much a necessity. We are already running in to issues with Bitcoin, where only those with the funds or capability to create their own custom hardware are even able to take part in the mining process. Past that, we are just doing trades. While the coin is meant to be completely decentralized, this is keeping that from being a reality.

The Influx of Proof of Stake Coins

We have been going through a big influx of coins that are based on the proof of stake model. Some of these are starting out as proof of work (like Blackcoin) and then moving over to proof of stake after a short period, and some are starting out solely as proof of stake and are skipping the work stage completely. This is helping show that the crypto currency scene is evolving, and the technology behind it is constantly changing as well. The benefits that the proof of stake model brings to the table are great, and as more and more coins adopt it, things will continue to get better. Along with this, the mechanism behind proof of stake has been changing as well. Coins such as Reddcoin (which is created by Redditors) are going to be utilizing a new form of it called “proof of stake velocity.” This is just a new adaptation to the existing technology, much like the move from SHA-256 to Scrypt to X11. All of these are helping show that the development behind coins is still progressing and is very healthy, despite the values of them going down.

Conclusion

There are a couple of different methods of minting coins at this point: proof of work and proof of stake. As we move on and evolve the crypto currency field, we are learning newer and better methods of handling things, but these two have proven to be very valuable, each in their own way. Proof of stake is like a way of earning interest on coins that are earned through proof of work, and it helps ensure that there is longevity within the coin's future. Requiring almost no system resources and power makes proof of stake an awesome thing to add to any coin, and it also helps combat the 51% attack we so dread within the community (as it has already taken its toll more than once on unsuspecting coins in the past). I am looking forward to seeing what the community comes up with next!

Source (Growthcoin) | Source (Bitcoin)

Mining


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