Since anyone can create a block, there needs to be a way that everyone on the blockchain can reach consensus, deciding together what block accurately represents recent transactions across the network. Without a central authority, trust comes from creating consensus algorithms that are very, very hard to cheat.Proof-of-Stake
PoS happens by a miner putting up a stake or locking up an amount of their coins, to verify a block of transactions. The cryptographic calculations in PoS are much simpler for computers to solve: you only need to prove you own a certain percentage of all coins available in a given currency. For example, if you somehow owned 2% of all E-Coin (ECN), you’d be able to mine 2% of all transactions across E-Coin.
51% Attack
A 51% attack is when a miner, or more likely a mining pool, controls 51% of the network’s computational power. With that ability, they could invalidate valid transactions and double spend funds. They’d achieve this through creating and confirming their own fraudulent blocks, and do it so quickly, the rest of the mining community creating genuine blocks would have their legitimate work invalidated.
That’s where PoS could really help. Even if someone owned 51% of a digital currency, it would not be in their interest to attack something in which they have a majority share. Also, it’s very unlikely that anyone would be interested in buying up 51% of a currency, due to it being prohibitively expensive. According to game theory, those with a larger stake in a cryptocurrency should want to maintain a secure network. Any attack would only serve to destabilize the digital currency, diminishing the value of their stake.
Proof-of-Work
Proof-of-Work happens through miners trying to solve exceptionally difficult math problems. Finding a solution is basically a guessing game, but checking if a solution is correct is easy. Miners aren’t able to cheat the system because it takes real-world resources to work out these solutions.
That’s where the main issue with PoW stems from: these real-world resources are computers and electricity. It takes a lot of power to run the computers, or clusters of computers, that calculate different potential solutions. From an ecological standpoint, this isn’t ideal. This leads miners to have high energy costs and this is bad for the environment.
The fact that you need a serious amount of computing power, more than the average person could afford, or would even be able to work with, means the mining community is getting smaller and more exclusive. This goes against the idea of decentralization, and could potentially lead to a 51% attack.
PoS would be a more fair system than PoW, as technically anyone could become a miner. PoS offers a linear scale regarding the percentage of blocks a miner could confirm since it’s based on that person’s stake in the cryptocurrency. That means someone with ten times more coins (e.g. - $10,000 vs. $1,000) would only mine ten times more blocks. Under PoW protocols, spending ten times as much money on mining hardware will produce higher computational power logarithmically, allow for more equipment due to the nature of reduced prices when buying in bulk, and might provide further advantages since highly expensive equipment often functions exponentially better than less expensive counterparts.
Proof-of-Work happens through miners trying to solve exceptionally difficult math problems. Finding a solution is basically a guessing game, but checking if a solution is correct is easy. Miners aren’t able to cheat the system because it takes real-world resources to work out these solutions.
That’s where the main issue with PoW stems from: these real-world resources are computers and electricity. It takes a lot of power to run the computers, or clusters of computers, that calculate different potential solutions. From an ecological standpoint, this isn’t ideal. This leads miners to have high energy costs and this is bad for the environment.
The fact that you need a serious amount of computing power, more than the average person could afford, or would even be able to work with, means the mining community is getting smaller and more exclusive. This goes against the idea of decentralization, and could potentially lead to a 51% attack.
PoS would be a more fair system than PoW, as technically anyone could become a miner. PoS offers a linear scale regarding the percentage of blocks a miner could confirm since it’s based on that person’s stake in the cryptocurrency. That means someone with ten times more coins (e.g. - $10,000 vs. $1,000) would only mine ten times more blocks. Under PoW protocols, spending ten times as much money on mining hardware will produce higher computational power logarithmically, allow for more equipment due to the nature of reduced prices when buying in bulk, and might provide further advantages since highly expensive equipment often functions exponentially better than less expensive counterparts.
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