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Author Topic: Proof of Work (PoW) VS. Proof of Stake (PoS)  (Read 1284 times)

Offline Fact

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Proof of Work (PoW) VS. Proof of Stake (PoS)
« on: March 13, 2018, 12:57:04 PM »


Quote
What is the Proof of work?


Proof of work is a protocol that has the main goal of deterring cyber-attacks such as a distributed denial-of-service attack (DDoS) which has the purpose of exhausting the resources of a computer system by sending multiple fake requests.

The Proof of work concept existed even before bitcoin, but Satoshi Nakamoto applied this technique to his digital currency revolutionizing the way traditional transactions are set.

In fact, PoW idea was originally published by Cynthia Dwork and Moni Naor back in 1993, but the term “proof of work” was coined by Markus Jakobsson and Ari Juels in a document published in 1999.

Proof of work is maybe the biggest idea behind the Nakamoto’s Bitcoin white paper – published back in 2008 – because it allows trustless and distributed consensus.





Proof of work and mining

Going deeper, proof of work is a requirement to define an expensive computer calculation, also called mining, that needs to be performed in order to create a new group of trustless transactions (the so-called block) on a distributed ledger called blockchain.

Mining serves as two purposes:

    To verify the legitimacy of a transaction, or avoiding the so-called double-spending;

    To create new digital currencies by rewarding miners for performing the previous task.

When you want to set a transaction this is what happens behind the scenes:

    Transactions are bundled together into what we call a block;

    Miners verify that transactions within each block are legitimate;

    To do so, miners should solve a mathematical puzzle known as proof-of-work problem;

    A reward is given to the first miner who solves each blocks problem;

    Verified transactions are stored in the public blockchain

This “mathematical puzzle” has a key feature: asymmetry. The work, in fact, must be moderately hard on the requester side but easy to check for the network. This idea is also known as a CPU cost function, client puzzle, computational puzzle or CPU pricing function.

All the network miners compete to be the first to find a solution for the mathematical problem that concerns the candidate block, a problem that cannot be solved in other ways than through brute force so that essentially requires a huge number of attempts.

When a miner finally finds the right solution, he/she announces it to the whole network at the same time, receiving a cryptocurrency prize (the reward) provided by the protocol.

From a technical point of view, mining process is an operation of inverse hashing: it determines a number (nonce), so the cryptographic hash algorithm of block data results in less than a given threshold.

This threshold, called difficulty, is what determines the competitive nature of mining: more computing power is added to the network, the higher this parameter increases, increasing also the average number of calculations needed to create a new block. This method also increases the cost of the block creation, pushing miners to improve the efficiency of their mining systems to maintain a positive economic balance. This parameter update should occur approximately every 14 days, and a new block is generated every 10 minutes.

Proof of work is not only used by the bitcoin blockchain but also by ethereum and many other blockchains.

Some functions of the proof of work system are different because created specifically for each blockchain, but now I don’t want to confuse your ideas with too technical data.

The important thing you need to understand is that now Ethereum developers want to turn the tables, using a new consensus system called proof of stake.





What is a proof of stake?

Proof of stake is a different way to validate transactions based and achieve the distributed consensus.

It is still an algorithm, and the purpose is the same of the proof of work, but the process to reach the goal is quite different.

Proof of stake first idea was suggested on the bitcointalk forum back in 2011, but the first digital currency to use this method was Peercoin in 2012, together with ShadowCash, Nxt, BlackCoin, NuShares/NuBits, Qora and Nav Coin.

Unlike the proof-of-Work, where the algorithm rewards miners who solve mathematical problems with the goal of validating transactions and creating new blocks, with the proof of stake, the creator of a new block is chosen in a deterministic way, depending on its wealth, also defined as stake.

No block reward

Also, all the digital currencies are previously created in the beginning, and their number never changes.

This means that in the PoS system there is no block reward, so, the miners take the transaction fees.

This is why, in fact, in this PoS system miners are called forgers, instead.

Why Ethereum wants to use PoS?

The Ethereum community and its creator, Vitalik Buterin, are planning to do a hard fork to make a transition from proof of work to proof of stake.

But why they want to switch from one to the other?

In a distributed consensus-based on the proof of Work, miners need a lot of energy. One Bitcoin transaction required the same amount of electricity as powering 1.57 American households for one day (data from 2015).

And these energy costs are paid with fiat currencies, leading to a constant downward pressure on the digital currency value.

In a recent research, experts argued that bitcoin transactions may consume as much electricity as Denmark by 2020.

Developers are pretty worried about this problem, and the Ethereum community wants to exploit the proof of stake method for a more greener and cheaper distributed form of consensus.

Also, rewards for the creation of a new block are different: with Proof-of-Work, the miner may potentially own none of the digital currency he/she is mining.

In Proof-of-Stake, forgers are always those who own the coins minted.
How are forgers selected?

If Casper (the new proof of stake consensus protocol) will be implemented, there will exist a validator pool. Users can join this pool to be selected as the forger. This process will be available through a function of calling the Casper contract and sending Ether – or the coin who powers the Ethereum network – together with it.

    What is Blockchain Technology? A step-by-step guide than anyone can understand

    “You automatically get inducted after some time,” explained Vitalik Buterin himself on a post shared on Reddit.

“There is no priority scheme for getting inducted into the validator pool itself; anyone can join in any round they want, irrespective of the number of other joiners,” he continued.

The reward of each validator will be “somewhere around 2-15%, ” but he is not sure yet.

Also, Buterin argued that there will be no imposed limit on the number of active validators (or forgers), but it will be regulated economically by cutting the interest rate if there are too many validators and increasing the reward if there are too few.

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Proof of Work (PoW) VS. Proof of Stake (PoS)
« on: March 13, 2018, 12:57:04 PM »

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Offline EmoneyABC

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Re: Proof of Work (PoW) VS. Proof of Stake (PoS)
« Reply #1 on: March 18, 2018, 01:25:26 PM »
POS is the way to go and POW will be always remembered as a first mining algorithm. We just will be moving to newer and better mining solutions and this is good. POS don't need so many resources and is easy to implement literally but anybody with basic computer knowledge.
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Re: Proof of Work (PoW) VS. Proof of Stake (PoS)
« Reply #2 on: March 19, 2018, 09:43:51 AM »
All blockchains from the third generation are with some form of proof of stake. So the future is there and big plus for the technology is the fast mining of the blocks but PoS brings inherited centralization. Another question is how the different blockchains combat the problem  ;)

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Re: Proof of Work (PoW) VS. Proof of Stake (PoS)
« Reply #3 on: March 20, 2018, 11:47:55 AM »
This is the most informative post for the mining systems around for the cryptocurrency coins and tokens. POS is the future of mining coins or tokens however POW is gaining strength due to the technological advancement of green energy. Bought of this system is important in the cryptocurrency world!

 

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