What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?
What are blockchain consensus mechanisms?
In technologies based on block chain structures, it is necessary that there be an effective interconnection between the different nodes and links in the chain that verify and transfer the information received, ensuring that the data handled does not suffer alterations in any degree throughout the process, and that it maintains a synchrony with the general ledger, which certifies and grants final security to the operations. This process requires a consensus between all the nodes involved in the transfer and safeguarding of the information, since the information is kept decentralized in thousands of autonomous blocks intertwined with each other, it is necessary that all the nodes reach the same reading of the copy.
These consensus mechanisms are equipped with calculation protocols, whose algorithms are census and examined by "miners", through the implementation of "Hash" units (computer units that transform random data of origin into compact text strings), to verify and certify the data of a chain (leading to large energy requirements and rewarding the participating user with an amount of final currency). These algorithms are known as PoW (proof of work).
In this system, the consensus mechanisms ensure, through complex calculations and mathematical figures, that each new block that enters the matrix chain is verified and confirmed in each operation that is formulated by a user who gives the system the computer tool in which can develop these calculations. (which require time and energy to carry them out, and hardware to solve them, according to their complexity, which gives the certainty that they cannot be violated). Once done, the node shares the supported information to the rest of the chain, which in turn verify and adopt if these are correct, thus creating a valid block.
What is the difference between PoW and PoS?
Unlike the Test of Strength, where the miner has to elaborate the algorithms that validate the block destined for the chain, and is rewarded with coins for it, in the Test of Stake it is not necessary to "mining" transactions, but rather stores the legitimate transactions, provided with value with respect to the currency, this by means of "bets" of deposited tokens in order to assure and validate a certain currency; In other words, those who have a certain amount of coins, bet a portion of them on a node that, under a random choice, reaches its validation with the consequent reward for the holder.
In contrast to PoW, where computers maintain a competition to be the first to successfully decipher a transactional block, in Proof of Stake the process does not require a large energy expenditure, since computers instead of competing, join forces in proportion to assets held for validation. This allows an amount of currency to be allocated so that a node can validate them, while these coins are blocked, while confirming that the transaction is authentic; If this validation is correct, it is ensured that the information contained in that block is true by the verifiers, for this reason a reward is granted to the holder accordingly, all this without the forced appeal to the force of a hardware.
| POW | POS |
|---|---|
| High computer power requirements are essential to perform the calculation algorithms in the shortest time possible and to thread the blocks successfully. | As it requires less complex operations, it requires less powerful hardware, allowing the participations to be carried out with conventional computers |
| The verification process confers on the information transferred from block to block inviolability with respect to possible tampering of information in the chains. | The confirmation is not sent by the holder of the coin willing to verify in the bet, whose coins are already constituted. |
| To effectively add new blocks to the chain, the different computers compete with each other to solve the algorithms to complete their successful reading, in order to achieve the confirmation of their new block by the rest of the nodes. | The verification of the blocks depends on the amount of coins deposited by the holder, therefore, groups of minority holders join to configure the new blocks. |
| They demand large energy consumption since, to solve the mathematical figures in the shortest time possible, large consuming computers are needed to carry out the transactions. | The energy savings are considerable, since the absence of any "mine" involved in the validation process of the block, simplifies the energy requirements. |
| It takes a certain amount of time for the servers to properly process the data involved in the verification process of the block to enter the core of the chain. | The verification process is much faster, and it supports simultaneous verification operations, since it does not require extensive use of mathematical set analysis. |
Advantages and disadvantages?
01. POW
Advantages
It allows the development of new monetary units, while strengthening and verifying the admissibility of the existing blocks, validating the consensus between the different nodes chained in the Blockchain.
By solving the mathematical algorithms, which ensure the transferability of the information processed by the nodes and networks of the block chain, profits are obtained from the verified cryptoasset.
The consensus established between the different decentralized nodes favors that if any data does not agree with the rest of the nodes or the data transmitted at any of its ends is interrupted, this information is not altered to any degree, since the multiplicity of blocks that contain the signs, ensure their permanence in the chain.
To create new blocks and be rewarded with the cryptocurrency thus established, it is only required to possess the hardware and physical processing necessary for its "mining" cash.
The security related to the chain is ensured, since for an attack to affect the system, it must have a technology that has such information processing capacity, whose maintenance cost makes it impractical and economically unfeasible.
Disadvantages
Due to the large data processing involved in each transaction, it consumes an enormous amount of energy, with the environmental damage that this represents.
It becomes unfeasible for computers of discrete capacity to be able to conveniently access and solve the mathematical algorithms that authenticate the chain of blocks. Which entails a hoarding, since the holders with greater processing capacity will produce the majority of the blocks.
Successful processing of figures requires a considerable amount of time.
It is subject to the risk of a possible 51% attack: This happens when an attacking mining group can control most of the network's computing capacity, resulting in a manipulation in the computations, which the manipulating entity could stop new cryptographic links , as well as creating a conflict in the registry of the verified blocks. The so-called double spending could also happen, since whoever controls the network can make an effective expense and then cancel it, with which the chain would return the spent currency. This attack would be carried out in cryptocurrencies with less interlacing of nodes, since systems with less complexity in cryptographic algorithms are more sensitive to hacking than most.
02. POS
Advantages
Transaction processes are much faster, since it demands a decreased amount of processing work, to solve the verification of a block.
It does not require investment in large computer equipment; owning a sufficient amount of coins is a participant in the transaction verification process.
The consensus validation procedure is selected randomly, which allows any holder (no matter how simple their Hardware) to access the reward of the cryptocurrency.Here we do not find the competition between nodes to decipher the new block that will enter the chain, such as as it happens in the PoW.
Its very decentralized nature allows the value of the currency not to suffer violent alterations in its price.
If any holder wants to maliciously influence the chain, or modify its content, he is penalized accordingly with a loss of assets.
It stipulates great energy savings, compared to the wasteful mining processes involved in PoW.
Disadvantages
Because rewards are directly determined by the amount of assets held and the time spent in the process, small holders and newcomers would not be able to rapidly progressively increase their assets.
Those who have large amounts of cryptocurrencies, will achieve the most successful validations, which generates hoarding in the hands of those with greater wealth and resources; with the centralization that supposes to store the units of value in few holders.
Its security is not as accurate as in the Test of Strength consensus. It may be subject to eventual malicious manipulation if someone acquires the majority of the verifiable stock.
Liquidity is reduced to limited amounts, since new currency creations are subject to the number of "stakes" under transactional provision. These rewards grow to a lesser extent than the creation that happens in the mining process, according to a finite investment, on the procedural computations that enter the node.
Which is better in terms of scalability?
Scaling capacities are the admission factors that have a consensus mechanism to examine and process verifiable transaction operations with greater immediacy.
Taking this into account, the optimization in transaction processing times granted by the PoS consensus is inferred, since PoWs require a long calculation time (to analyze and recreate an interlaced cryptographic reading chain), in comparison to the Much more immediate PoS processes (which only need to confirm the validity of the currency ready for validation by the nodes), which allow traffic and verification of the blocks without major analytical compilation efforts, without delaying operations.
Examples of cryptocurrencies that use PoW and PoS?
- Bitcoin: The pioneer in applying technologies based on "Hash Cash", allowed it to create a base of trust in its cryptographic sustainability, creating a security base in its resources, thus creating new stocks of BTC's. Each transaction with its complete confirmation is carried out in 10 minutes.
- Ethereum 2.0: One of the most widespread cryptocurrencies with the highest market value, with its "merge" (since it will merge with Beacon Chain), it makes the transition towards a model based on PoS, which will lead of the currencies that function under the participation system.
- Cardano: Currently it is the cryptocurrency based on the PoS system that has the highest market valuation in the market (its capitalization amounts to more than 39 billion dollars. Its system operates under the analytical calculation of the amount of cryptocurrencies available under a complete decentralization of its processes.
