I'm glad to be here again to present this homework post on "Different types of Consensus Mechanisms". A special appreciation to Professor @sapwood for this wonderful opportunity.
What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?
What is the difference between PoW & PoS?
Proof of work(PoW)
Proof of Work(PoW) serves as the basis for many cryptocurrencies. It's use make such cryptocurrency secure as well as a platform to operate in a decentralized consensus.
PoW was first adopted by Bitcoin in 2008. Since then, many other cryptocurrency have adopted it and still continue to do so.
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PoW is a secured, decentralized consensus mechanism that make use of a particular network through effort in finding solutions to complex mathematical problems which enable them to verify transactions. Once a task(solving the complex mathematical puzzle) is completed, the miner is rewarded with a block reward as well as a fee.
The proof of work is used for the following;
- Validating transactions
- Mining new token
- Cryptocurrency mining
The start of a transaction in the blockchain leads to an unconfirmed pool. The resulting puzzle is solved in order to verify and consequently validate the transaction. Once validated, it is absorbed into the block with its own signatory timestamp.
The addition prevent any other attempt at adding or spending the same amount. This activity is carried out by the miners. On average, miners generate a proof of work in every 10 minutes in the case of Bitcoin. It is lesser for some other cryptocurrency.
In order to carry out this process, miners usually collaborate in order to increase their chances. It is also worth mentioning that selection of miners is done randomly by the network with each miner having equal chance of being chosen.
Proof of Stake(PoS)
PoS function based on the concept that validation and mining blockchain is determined by the number of coin held by such person. As such, the more coin a person or validator has, the more his mining power. In other words, mining power is directly proportional to the coin owned.
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Source
This is an alternative consensus mechanism to PoW and tends to address the concerns or inadequacies of the PoW which includes but not limited to environmental impact and also scalability issues. It does not require a mining platform.
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The differences seen in a Proof of Work (PoW) and Proof of Stake (PoS) consensus mechanism are highlighted below using a table.
| Proof of Work(PoW) | Proof of Stake(PoS) |
|---|---|
| Lots of energy in form of electricity is expended in carrying out PoW | it does not require lots of power to operate. |
| It requires a lot of investment in terms of hardware purchase | It requires little investment instead money is spent to buy stakes and also upgrade reputation rather than on hardwares. |
| It requires the use of specialized equipment so as to increase or boost processing power | Normal server can be used in PoS |
| Miners compete to find solutions to complex mathematical puzzle using electronic power in other to earn a reward | little or no competition as it is done using specialized algorithms in which selection is based on the user's stake. |
| The mining of block is influenced by how fast a miner provides solution to mathematical puzzles | The ease of validating a block is influenced by coin owned by a user. |
| Incentive for solving a mathematical puzzle is in form of a block reward | Incentive is in form of a network fee to the user and it depends on the stake held by the user. |
| The output or incentive is determined by the ability to solve complex computational problems and the quality and power of hardware assembled | The output is determined by the stake held by the user and not by hardware used. |
Advantages & Disadvantages of PoW and PoS?
Advantages of PoW
- PoW is highly secured due to the decentralized nature there by making peer to peer transaction possible.
- Since selection of miners to solve mathematical puzzle is done randomly, it is fairer and each user have an equal chance of being selected.
- This mechanism when used reduces chances of alteration of transaction as each transaction is authentic and traceable as well.
- The miners are rewarded after successful completion of task with reward block as well as a share of transaction fee.
- PoW also prevents double spending on the network.
Disadvantages of PoW
- In order to solve this complex computational problems, PoW make use of specialized and expensive computers that make use of lots of electricity. This has severe impact on the environment.
- Scalability is also an issue in PoW
- It is quite expensive to operate in terms of the cost of operation especially in the area of power, machine cooling, setting up and maintenance.
- Cost involved in it's operation or using PoW has prevented individuals and organizations from using it.
- It takes time to complete a complex mathematical puzzle in order to earn a reward due to its scalability.
Advantages of PoS
- Unlike PoW, PoS consumed low power and thus have lesser or no environmental impact in the course of it's usage.
- It also carry out transaction at a very fast rate. This is the reverse in POW were scalability limitations slow down speed of transactions.
- It is designed in such a way that more users are attracted so they can earn good rewards by increasing their stakes.
- It help to broaden the scalability of network.
Disadvantages of PoS
- PoS are more prone or susceptible to various forms of low-cost attacks.
- PoS can also lead to a less decentralized network due to monopoly whereby only those with more coin get more rewards.
Which one is better in scaling Capacity?
Scaling capacity of a blockchain refers to capacity of a network to be used in a variety of ranges.
The increase in cryptocurrency usage have continued to add more pressure on the blockchain. PoW algorithm in this circumstances find it difficult to function properly to such mainstream use. For instance the PoW used in Bitcoin has a size of just 1 Mb as such is too little to handle or sustain the numerous transaction in such network. This result in slower transaction time. In this regard, PoS algorithm can tackle such scalability issues affecting PoW. Transactions settlement in PoS is quite fast taking less than a second when compared to PoW. It is this lower load that reduces energy consumption and at the same time bring about faster transaction time.
For me, the scaling capacity of PoS is much better.
Examples?
Examples of PoW includes: Bitcoin, Ethereum, Monero, Bitcoin Cash, litecoin, Ethereum Classic, ZCash
Examples of PoS include: Cardano, Algorand, Cosmos, Solano, Binance Coin, Elrond.
Conclusion
Various consensus mechanism are been adopted by various cryptocurrency. The Proof of Work and Proof of Stake are very commonly used. Each of this mechanism has its strong point and weak points. It can however be said that their uses are very important in validation of transfers as well as mining of cryptocurrency.
I am very grateful for this opportunity to learn from the knowledge of Professor @sapwood which has opened my eyes to so many things especially on how consensus mechanism work and it's part on cryptocurrency industry.