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How POS mining works | What is the Proof-of-Stake?

28.11.2021
How POS mining works | What is the Proof-of-Stake?

Proof-Of-Stake – what is it?

The infrastructure of the cryptoworld does not seem so complicated at first glance.
For the average user today it is not difficult to come to the exchange to buy and sell cryptocurrency.
However, it is important to understand that behind all these processes is a huge society that works around the clock and supports the payment infrastructure and helps in the implementation of transactions and operations.
Cryptocurrency assets today are divided into 2 types according to the principle of work: Proof-of-Work (PoW) and Proof-of-Stake (PoS).

What is the Proof of Stake (PoS) system?

The first mention of Proof-of-Stake was back in 2011.
System Proof-of-Stake or Proof of ownership PoS is a digital asset protection principle that allows only those users who have the currency they intend to mine in their account to mine.
The percentage of mining is directly proportional to the share of the miner's ownership. For example, if the user has 5% currency in his account, he will generate 5% new blocks.
At the moment, the principle of Proof-of-Stake operates three cryptocurrencies, which are in the top 30 global cryptocurrencies - NEO, VeChain and Dash.
The PoS concept implements a type of mining in which it is not necessary to use users' computing power, just to store crypto-assets in your account.
The mechanism also helps improve blockchain technology, and allows it to spread considerably in the industry.
The much lower vulnerability to fraud and hacker attacks is drawing more and more attention to this mechanism and pushing the community to create applications and coins running on PoS.

Principle of PoS mining

The algorithm allows users who already have coins in their wallet to be more likely to qualify for proof of ownership, and receive a reward for doing so.
The principles of PoS mining are as follows:

  1. Firstly, the user needs to choose a digital currency, which works on the Proof-Of-Stake algorithm. Then you need to get a wallet for this digital currency and start buying cryptocurrency, and then put them on the e-wallet.
  2. The second step is to connect the e-wallet to forging in order to start mining. In certain circumstances, this requires a program that will provide coin mining, or use an automatic mining program that will allow you to not install any additional programs and deal with its installation - mining will be done automatically and then it will get into the wallet.
  3. After that, you need to activate the wallet and wait for the whole blockchain to load and communicate with the nodes.
  4. The final step, which does not require any action from the user - the utility performs mining calculations, and after some time the produced coins will enter the wallet.

In order to mine, you need a strong user computer on which to install the forging software. It is also necessary to have stable and fast Internet at the place where the PC is installed.

The difference between Proof-of-Work and Proof-of-Stake

Both Proof-Of-Work and Proof-Of-Stake algorithms are used in the cryptocurrency world to validate transactions and operations.

 

Consider the differences between the two algorithms.

  • Proof-Of-Work
    Proof-Of-Work fundamentally uses cryptography to determine the authenticity and validity of transactions. It does this by using mathematical equations. After the algorithm solves and validates the transaction, the user receives a block reward. This secures the network and also prevents hacking attacks.
    This is a very reliable scheme that has worked since the inception of the cryptocurrency world, which successfully operates to this day.
    However, like any system, it has its disadvantages.
    The main disadvantage of Proof-Of-Work is the amount of energy it takes to operate.
    Experts and the cryptocurrency community are concerned about the sustainability of this algorithm, as well as its sustainability in the long term.
    The second significant problem is the scalability of the algorithm.
    It takes a long time - about 10 minutes - to complete a single block, which affects the cost of sending currency assets. At the busiest times, the price of transactions rises significantly, which is certainly a problem.
  • Proof-Of-Stake
    As for Proof-Of-Stake, this system appeared as an alternative and improved model. It uses a completely different algorithm to check and confirm the validity of transactions. Of course, it is based on the principle of cryptography, but the mechanism is completely different.
    In order to ensure the security of the network, a user can only mine a coin after purchasing the desired coin, as if to put digital coins on the blockchain to confirm their desire to mine, make transactions and receive rewards.
    To get their right to confirm transactions, the user deposits digital coins into the wallet of the selected coin, after which the assets will be ‘’frozen’’. In this way, the system resembles betting.
    The percentage of transaction validation is directly proportional to the number of coins you put into the blockchain.
    It seems that Proof-Of-Stake is not as secure as Proof-Of-Work. But the developers have taken the security issue seriously. Since the amount of betting on the blockchain varies from user to user, when an attempt is made to hack the network, the scammer simply loses his share irretrievably.  Moreover, the Proof-Of-Stake system is more environmentally friendly because it uses less energy to implement algorithms and check transactions.

Advantages and disadvantages of the PoS algorithm

Each of the two currently existing systems has its own advantages and disadvantages. Moreover, it is not quite correct to compare them in full yet. Proof-Of-Work has been working since the first cryptocurrencies existed, while Proof-Of-Stake is entering the market, attracting digital coin creators to its side.

  • Proof-Of-Stake’s benefits
    The system does not require a huge expenditure of electricity, which is more environmentally friendly. Some experts believe that this factor will play a key role in the choice of algorithm for cryptocurrencies in the future. The high cost of electricity consumed by Proof-Of-Work is highly criticized by the public, concerned about the environmental issue.
    The process of mining on PoS is not connected in any way with solving computational tasks, which means that the power of the equipment does not play a special role - you can mine on the existing equipment or on a home computer.
    The algorithm has no currency or time constraints, since all the processes of calculating transaction validity take place in another system, and there is no geometric progression decrease.
    Protection against attack 51. This is an attack in which 51% of the algorithm's power controls all processes occurring in the system. In Proof-Of-Stake algorithm this does not happen, as the user has 51% of the amount of cryptocurrency in the market in his hands.
  • Disadvantages
    The disadvantages of the system include the fact that it is impossible to work on it from the very beginning. You still have to use the Proof-Of-Work algorithm or ICO to start, where you can sell a specific number of coins to other users or investors.
    The second disadvantage is a fairly high threshold for entry. It is necessary to have a large starting capital to receive rewards on this algorithm. Initially, you will have to spend to buy currency, confirm transactions, and only then start mining your own and making transactions in the system. Therefore, it is important for all those interested in making profit in the system to keep in mind that you will not be able to start earning right away.
    The Proof-Of-Stake algorithm is very centralized. It involves concentrating most of the currency in one hand, so it is extremely difficult to price digital currency to attract many users and investors, rather than giving everything available to one person.

What cryptocurrencies does Proof-of-Stake support?

Blockchain-based cryptocurrencies are now gaining in popularity not only among investors in digital assets, but also in the community whose users make all kinds of transactions in the crypto world every day and on a regular basis.

The most popular coins supported by the Proof-Of-Stake consensus are:

  1. DEL. Non-interchangeable token. It is similar to bitcoin, but it does not require a lot of electricity and purchase of video cards. This coin is produced on the Decimal network as a reward by cryptocurrency validators.
  2. ChangeNow. It is one of the leading quick exchange platforms that does not require registration, which has its own NOW token. It allows its users to use new assets on the ChangeNOW platform. In addition, it allows users to earn about 25% per annum with its new stacking program.
  3. NAV (NavCoin). This coin runs on the PoS algorithm and is notable for the speed of its transactions. It allows for simple, fast and efficient stacking, even on cold wallets.
  4. VET. A Proof of Authority coin, which is similar to the Proof-of-Stake. The trick of the coin is that if you bet your VET, it will give you back your VTHO token. The coin has a mobile app where you can bet your tokens and get rewarded for it in the form of transaction fees.
  5. Cosmos (ATOM). Based on the Proof-of-Stake algorithm, it makes it easier and faster for blockchains to interact with each other. ATOM has its own coin, which is growing in popularity every day - the company has already raised $16 million thanks to its ICO.
  6. IOSToken (IOST). This token is popular and is used in the sphere of games and Internet services. The undoubted advantage of the coin is the speed of transactions due to the decentralized models.

Proof-of-Stake's perspectives

According to the PoS List, more than 140 cryptocurrencies are already working on this algorithm.
It would seem to be quite an impressive figure, but it is only 6 percent of all cryptocurrencies on the digital market. And their number is growing every day.

In 2019, Proof-of-Stake cryptocurrencies were capitalized at $23 billion, accounting for 8% of the entire market capitalization of the crypto community.

Despite the relatively small numbers of statistics, cryptocurrencies are steadily taking their place in the world of digital technology and assets. They are steadily growing in both number and price. Today, it is an excellent alternative consensus for cryptocurrencies, in which users of currency platforms, investors and developers of digital ecosystems and coins are interested.

An important news concerning the reputation of Proof-of-Stake was the release of Ethereum 2.0, which fully transitions to this algorithm. Such a move on the part of a reputable coin platform can certainly be considered an act of consensus trust. And, perhaps, it will serve as an example for other major cryptocurrency ecosystems.

The cryptocurrency community recognizes the advantages of this algorithm: environmental friendliness, resistance to attacks, excellent scalability, and the ability to mine on small capacity PCs.
Proof-of-Stake is currently a fairly promising algorithm that can compete with Proof-of-Work. Moreover, the mechanism contributes to the modifications of blockchain technology itself, its development, and the strengthening of security.

Conclusion

The digital world is growing every day, not only in terms of the number of coins and ecosystems emerging, but also in terms of the volume of trading platforms and capitalization. More and more developers, investors and traders are entering this market to buy, sell or broker goods and services.

That is why technology needs to improve. Proof-of-Stake is a step in the direction of creating an environmentally friendly alternative that provides high transaction speeds and greater performance of the digital space. Of course, the algorithm still has a long way to go, full of difficulties and improvements. But it stands a good chance of getting ahead in the security consensus competition.

We recommend looking at the DBX token. It is the best offering in the cryptocurrency world in 2021. The best cryptocurrency publications of the world, which have repeatedly written about the DBX phenomenon in 2021, agree with this opinion.