Proof of Work vs Proof of Stake

Crypto Knowledge for the day:

The Method by which participants help verify transactions and are rewarded with Cryptocurrency come in many flavors the most popular two being… Proof of Work (Bitcoin, Ethereum, Litecoin) and Proof of Stake (Waves, Bitshares)

There are a handful of others but by far these are the most common.

PoW (Proof of Work): Essentially this is when you set your computer to crunch numbers in order to earn the right to mine the next block and get the reward. Essentially imagine a box with a super long combination, it would take a long time to guess it. The more powerful the computer (ASICS) and the more people you have guessing with you (Mining Pools) the more likely you mine the next block. The big problem with this is the actual electricity it takes to have these computers do this task and the limits it places on how many transactions can occur depending on the blockchains design. This is part of the reason for Bitcoin/Ethereums recent congestion issues.

PoS (Proof of Stake): instead of your computer guessing numbers you set your computer to “Stake” which just means your computer is left idle to verify transactions and maintain the Blockchain but the likeliness you get the next block depends on how large is your Stake (your % of currency holdings vs everyone else staking). This encourages people to hold their coins and to buy more. The problem is it may discourage spending by those who Stake while on some blockchains they get other cool abilities such as voting for stuff as the Blockchain develops. This takes a lot less electricity and can handle a lot more transactions with computational power but discourages velocity (turnover of currency).

Some have developed hybrid systems or complete alternatives… the more you know!

Learn more at BitcoinBlockchainCrypto.com

Get free collectible Waves Assets at FreeCrypto.BitcoinBlockchainCrypto.com

alexmerced@alexmerced.com

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