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“Proof-of-Work” (PoW) and “Proof-of-Stake” (PoS) are the names of the most common types of consensus mechanisms, which are one of the core and most important compònents in a blockchain. With this mechanism, blockchains are able to:
Let’s understand the difference between these three different consensus mechanisms.
Proof of Work, abbreviated “PoW”, was the first consensus mechanism used in blockchain when it was implemented in the Bitcoin protocol.
Because blockchain protocols are basically software, they need computers to run them. Generally, these computers are called “nodes” and they store the information on all the transactions or balances of the network. The more computers that run a blockchain, the more resilient it becomes, because shutting down the whole network becomes more difficult.
Proof of Work systems assign computational tasks to their nodes, difficult enough to ensure that they will spend considerable time solving them, even when using powerful hardware to process them. Nodes that complete these inefficient tasks are then rewarded with cryptocurrency - more on this below. In a way, this method serves to demonstrate to the rest of the network that time and resources are actually being devoted to it.
Because of their longer history, PoW blockchains are currently considered the most battle-tested and “fault-tolerant”, which is a fancy way of saying that these systems can continue to operate despite some of their nodes failing.
But PoW has some notorious disadvantages as well:
1. Scalability. PoW chains can get congested quickly and do not allow for many transactions per second.
2. Sustainability. Producing the hardware needed for PoW mechanisms utilizes lots of energy and requires scarce resources, like semiconductors. And then, many times, this hardware quickly becomes obsolete.
PoW mining facilities, sometimes called “farms”, also consume enormous amounts of electricity, which may or may not be clean-sourced, and produce loads of heat and noise. This has been a major concern for some environmentalists and investors, who often shy away from assets using it, like Bitcoin.
An interesting example of this happened in May 2021, when Tesla suddenly announced it was no longer supporting Bitcoin payments for their cars.
Advantages
Disadvantages
* Ethereum has long planned a migration to a Proof of Stake (PoS) consensus mechanism, given the scalability problems that we mentioned . This upgrade is sometimes called “Eth 2.0”.
Proof of Stake, abbreviated “PoS”, is a consensus mechanism model designed during the 2011 Bitcointalk Forum’s discussions on the problems of Proof of Work and requires blockchains using it to launch with some of their coins pre-“mined”, although after that, blocks are said to be “forged” or “minted”.
To participate as a validator node, users lock or “stake” their coins into the network and the size of this stake usually determines their chances of being selected as a validator every block. However, different PoS blockchains might have different rules on how they do it, and different control methods to prevent other problems like centralization or favoring only the wealthiest nodes. Staked coins also work as a guarantee. If the network detects any issues, like fraudulent behavior, nodes can get their coins “slashed”.
PoS algorithms simulate PoW by using pseudo-random election processes while obviating all the hardware and computational redundancies of PoW.
PoS systems shine where PoW is weak: in energy efficiency and in sustainability. Some people can also argue that they encourage more decentralization since running a PoS node is usually easier and more affordable than running a PoW node.
On the flip side, PoS detractors argue that validators with large stakes can accumulate excessive power in these systems, compromising their security.
Advantages
Disadvantages
Examples of cryptocurrencies using PoS
Rewards for those securing the network:
In both cases, PoW and PoS, validator nodes get rewards for their job. After all, they are directing time and resources to keep the system running. These rewards can come in the form of:
Maya Protocol uses a “Proof of Bond” (PoB) consensus mechanism, which is similar to PoS’ but allows the system to produce economic value from the nodes’ staked resources. In other words, our “Node Operators” are also Liquidity Providers, their capital generates value for them and for the protocol.
Our system is also designed with several security considerations, like clear slashing rules and no delegation. And is also enhanced by other, complementary technologies like the “Threshold Signature Protocol” (TSS) and Tendermint.
If you are interested in the details, you can read all about them, about our approach to nodes, to consensus and to security in our recently published Whitepaper. You can also ask any doubts that you might have in our Discord server or reach out via our official Twitter account, we’d love to hear from you!
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