Proof of Work vs. Proof of Stake: Beginner's Guide!!
👨🏫Cryptocurrency Consensus Explained👨🏫
Consensus in cryptocurrency follows the same idea as consensus between people. The difference is it’s computers coming to a consensus AKA an agreement about whether a transaction is valid or not. Usually, the consensus threshold in cryptocurrency is more than half, or 51%
⛏What is Proof of Work?⛏
Any computer that wants to process transactions on a proof of work cryptocurrency blockchain like Bitcoin needs to solve a complex equation to earn the right to do so. This costs time and energy to do If this sounds tedious and arbitrary, it’s because it is. This idea of work exists exclusively as a means of protecting a cryptocurrency from manipulation by the computers connected to its blockchain
💰What is Proof of Stake?💰
Instead of using large amounts of computing power and energy to solve an equation to process transactions, a cryptocurrency coin is staked i.e. locked on the blockchain to earn the right to do so The length of time a cryptocurrency must be staked to process transactions can vary, as can the minimum amount of coins or tokens a computer must lock up as stake Logically, the more cryptocurrency you stake, the more likely you are to process transactions and create a block
⛓PoW: Advantages and Disadvantages⛓
In theory, anyone can connect their computer to a proof of work cryptocurrency to process transactions and earn cryptocurrency as a reward for doing so However, over the years companies have developed specialized computers called application specific integrated circuit machines or ASICs for short. This is gradually centralizing PoW cryptocurrencies What’s worse is that when a new and improved ASIC is released, the older model usually ends up in a landfill, and this is one of the many environmental concerns about proof of work cryptocurrency mining
💱PoS: Advantages and Disadvantages💱
In theory, anyone can connect their computer to a proof of work cryptocurrency to process transactions and earn cryptocurrency as a reward for doing so This is facilitated by the minimal hardware and energy requirements to participate in most proof of stake cryptocurrency blockchains However, most proof of stake cryptocurrency blockchains have high thresholds when it comes to the minimum stake you need to put down to connect to it as an independent computer Moreover, most proof of stake cryptocurrencies had something called a premine which is where a bunch of coins or tokens are minted in advance and distributed to the team and large investors Consequently, most proof of stake cryptocurrencies are more centralized than Bitcoin and Ethereum since the average user is stuck delegating to a validator or staking pool belonging to the team and VCs
📜 Disclaimer 📜
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies poses considerable risk of loss. The speaker does not guarantee any particular outcome.