In cryptocurrency field, you heard about POS (Proof Of Stake), and also POW (Proof Of Work), these words used in the mining of cryptocurrencies.
POS, POW and Hybrid these are three methods of mining, in a Hybrid method POS and POW both mining methods are been used.
Basically POW and POS are methods giving a proof of mining, means in a mining a miner receives some amount of money as a reward for his mining process, these two methods are decided which basis miner receives a reward.
What Is Mining..?
Before going to POW and POS you must know how mining is work and what is proof of mining, generally, mining means extraction of valuable minerals from various sources, here in cryptocurrency mining means extraction of Block from blockchain for recording coin transaction.
So What is Proof….?
Here Proof means when a new block is produced it needs to be appended to the blockchain, and all of the miner’s try to mine it, when a block arrives a miner hash all of the transactions in the block and he gets a hash of those transactions, so all the miners receive this hash of the old block and they need to find this other part called proof and when they append those two together they need to receive a certain answer that comes up with some random bit, when they hash the string they should get a certain answer and this answer is publically announced in blockchain, that this miner come up with correct answer and he owns this Block.
It is very hard to find the correct proof, so what miners do is they are trying different random proof with an old hash until they come up with a correct answer that unlocks a new block, this process takes a time when a miner gets a correct answer all miner is notified that this block belongs this miner.
Let’s Understand What is POW (Proof Of Work) mean’s.
First, you have to understand what is a Proof of work method mining because it is one of the old method of mining, and also one of the famous cryptocurrency Bitcoin uses this method.
In simple term, POW means when a miner mine a Block he get’s reward on the basis of what physical component he used to mine if he uses good and very powerful CPU (Central Processing Unit) and GPU (Graphic Processing Unit) then he receives more blocks to mine and gets more reward.
POS (Proof Of Stake).
POS is like a POW but here POS mainly focuses on eliminating the extra GPU and CPU and electricity usage on mining process, instead, here mining process is decided on the basis of which miner had the most amount of coin, those had a greater preference to mining new Block.
But here proof of stake has no miners but instead has validators and it doesn’t let people mine new blocks but instead mint or forge new blocks, validators aren’t chosen completely randomly to become a validator a node has to deposit a certain amount of coins into the network as stake you can think of this as a security deposit the size of the stake determines the chances of a validator to be chosen to forge the next block.
This does not mean that who had the most amount of coin in the network gets all the mining benefits, here maturity level of holding also considerable, that means deposited coins cannot be regularly transacted, this means in POS winning probability is decided on the basis of how much miner is holding coin and that coin maturity level winning probability is decided.
POS idea came to existence in 2011 in Bitcoin talk forum, when QuantumMechanic user of the forum write about this new idea of mining.
Advantages and Disadvantages of POS (Proof Of Stake).
POS mining method has had its advantages and disadvantages so let’s look at some Advantages first.
Advantages of POS.
Firs advantage of this method is to reduce power consumption, in POW miners who had great mining power is had a greater chance of mine major blocks, greate mining power leads to high-end CPU’s and GPU’s that leads to more power consumption and creating mining pools.
According to an economist, Bitcoin miners alone uses about 54 terawatt-hours of electricity enough to power five million households in the US were even powered an entire country of New Zealand or Hungary can be powered with electricity.
More power consumption is led to the creating of mining pools, mining pools lead to centralized mining performance than decentralized mining.
Prevent 51% attack, it means in POW 51% of miners are get together they can control entire blockchain and possible to reject coin transaction and also reverse the transaction.
To set up mining pools is one of the expensive processes, not everyone can do it, so POS is one of the solution to all of this problem.
Disadvantages of POS.
One of the major disadvantages hers is wealth, it means more money led to more chance to mine and this also can be led to the centralization of blockchain rather than decentralization, and also controls the transactions.
POS (Proof Of Stake) is particularly interesting because a growing portion of the cryptocurrency arena is trending toward it presently. Even Bitcoin’s impending Lightning Network upgrade seems to forebode a PoS-like system, even though the main Bitcoin chain will continue to rely on PoW.