Mining is the essential prosses in cryptocurrencies to introduce new coins by finding a new valid block.

To find valid blocks, cryptocurrencies uses the POW (Proof Of Work) consensus (rule) in the initial stage, that required the computation power to find a valid block on the network.

What is Proof Of Work?.

Proof of work mechanism works on the capacity of computation power individual have.

Under this method, when a new block arrives on the network it should pass the validation process conducted by nodes (who have a full copy of blockchain) after nodes hands over to miners who try to open the block by using their computers to find a valid hash of that block using trying different nonce (a random number which is added to the hashed block to ensure that the old block cannot reuse).

If a miner finds a valid nonce to the block before everyone on the network is considered as a winner of that block and miner receives a reward for mining the block along with transaction fees.

Until now, the POW system looks perfect for a cryptocurrency, but it have a certain drawback that can harm a coin blockchain network such as.

51% Attack: If a miner have more than 51% of the entire network computation power, then that miner can take control over the coin blockchain.

Not an Eco-friendly: As a coin gets bigger and bigger more and more miner joins the network to get a reward that leads to high competition for mining to win this competition a miner have to set-up high-end processors that consume more electricity and produce heat.

After seeing these kinds of drawback on the POW mechanism, the crypto community is in search of a new concept that not have the drawback of POW.

On that time, the POS (Proof Of Stake) emerges, POS concept first arrived at Bitcoin talk forum in 2011 when QuantumMechanic user of the forum write about this new idea of mining.

What is POS (Proof Of Stake)?

POS is a consensus mechanism that uses the Stake of a particular currency holder to participate in the mining process.

Here in this method in order to mine a block firstly user of the coin required to lock a certain amount of coins into the network as their stake. Based on the size of the stakes users are chosen as validator who produce the next block, in this case, the process called a forge.

This doesn’t mean high stake higher the forging opportunity, the process not to favour only the wealthiest validators in the network, more unique methods added into the selection process.

There are different selection methods used by different blockchain networks but the two most commonly used methods are.

1. Randomised Block Selection:
   In this method, the validators selected by looking for nodes with a combination of the lowest hash value and highest stakes.
2. Coin Age Selection:
   This method selects the validator based on how long their coins have been staked for. Coin age is calculated by multiplying the number of days the coins have been held as stake by the number of coins that are staked. Once a validator has forged a block, their coin age is reset to zero and they must wait a certain period of time to be able to forge another block – this prevents large stake validators from dominating the blockchain.

These two methods are very helpful in the POS system for making forging process randomised.

Also, in this system, if a validator wants to quit the forging process their stake along with the earned rewards will be released after verifying that there are no fraudulent blocks added to the blockchain by them.

In the POS system, the total amount of cryptocurrency units are usually created at launch because the system uses transaction fees as a reward for the validator also in some cases new currency can be created by inflating the coin supply which can then used as a reward.

Benefits and Drawbacks of POS (Proof Of Stake).

The POS emerged with the intention of tackling the problems on the POW system that obviously POW flaws become POS strength.

Benefits Of POS.

Cost-Effective:

With the small amount any user can enter into the POS forging process, here user didn’t have set up a high-end power computer that required a lot of energy.

Eco-Friendly:

In the POS system, no one uses the computation power that produces heat and consumes electricity.

Security:

Here if the network detects a fraudulent transaction, the forger node will lose a part of its stake and its right to participate as a validator in the future. So as long as the stake is higher than the reward, the validator would lose more coins than it would gain in case of attempting fraud.

Speed:

The block production occurs rapidly using “fast-finality” consensus design. As a result, POS networks are more performant in terms of on-chain transactions per second (TPS) and the actual settlement of network transfers.

Till now, the POS system looks a perfect fit for any cryptocurrency, but we all know that any system cannot perfect all-around here are some drawbacks of POS.

Drawbacks.

Leads to Centralization:

POS system is base upon the staking that corresponds to financial holdings, which means large coin holders have better ROI and the rich get richer. Similarly, the snowballing ROI of large coin holders threatens the network’s decentralized validation process.

The ‘Nothing at Stake’ Problem.

This problem occurs when a POS-based coin is forking (the blockchain splitting in two), during the fork existing validator stakes would be duplicated onto both chains meaning they could potentially claim twice the amount of rewards.

Conclusion.

Besides all the Benefits and Drawbacks, POS system is the best example of what crypto ecosystem can achieve to tackle the current system problems.

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