The world of Cryptocurrencies is changing quickly and there are a lot of people who are looking to get more involved. Before someone is able to make educated decisions about what they want to do with their money and how they want to invest it in this market, there are several terms that everyone should understand. By understanding these concepts, people will be able to make more educated decisions regarding what they are going to do with their assets in the world of Cryptocurrencies. One concept that people often bring up is called Proof of Stake.
What Is Proof of Stake (PoS)?
Proof of Stake (PoS) is a concept that basically states that an individual is able to validate block transactions in accordance with how many coins that person currently holds. As a result, this means that the more coins someone has, the more they are able to stake and the more power that person holds. There are a few key points that everyone should note when it comes to Proof of Stake and the world of Cryptocurrency. These include:
- With the concept of Proof of Stake (POS), those who mine coins are able to mine and/or validate various block transactions in direct accordance with the amount of coins that person currently holds.
- Proof of Stake (POS) was first created as a different option when compared to Proof of Work (POW). The PoW is the original and proven consensus algorithm in the world of Blockchain technology. In this manner, PoW is used to confirm transactions which ultimately adds new blocks to the chain.
- Proof of Work (POW) actually requires a tremendous amount of power and energy. In contrast, the idea of Proof of Stake (PoS) provides “mining power” based on the percentage of coins that are possessed by that person.
- In order for people to understand the idea of Proof of Stake, it is important to understand how this concept works when compared to Proof of Work. When someone initiates a transaction on the system, the data is fitted into a block. After this, the information is duplicated throughout various nodes and computers that are currently connected to the network.
In this manner, nodes act as an administrative body. They are the closest thing to controllers when it comes to the blockchain itself. In order for a block to get added to the blockchain, the block has to be verified. In PoW, the mining nodes will solve a computation puzzle, which is called the nonce. When a miner completes the problem, they are rewarded with Bitcoins. Before the reward is able to be given out, it needs to be verified. That is where the other nodes play a role. This is where the idea of Proof of Work came from. The network has been designed in such a way that all transactions are tracked and verified.
The process of Bitcoin mining itself requires a tremendous amount of computing power. This power is needed to run the calculations that are required to unlock new Bitcoins and blocks. The computing power is directly related to the amount of energy and power, in the form of electricity, that is needed to solve the issue of proof of work. This led to the birth of the Proof of Stake concept. The idea of Proof of Stake is to address the issue of power consumption by taking mining power and building it in proportion to the number of coins that are held by each individual miner. In this manner, a staker who uses the Proof of Stake concept is limited to mining a certain number of transactions that are completely reflective of his or her ownership stake.
Only time will tell if Proof of Stake is a viable concept.