What is Proof of Stake (POS) in Crypto and how does it work?
In the world of crypto trading, there are no banks or financial bodies to validate and verify transactions. Instead, crypto trading networks use validation methods such as proof of work and proof of stake.
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In this article, we will discuss in detail what Proof of Stake is and emphasize why you must learn crypto trading before you begin your crypto mining journey.
The simplest explanation of proof of stake:
Proof of work used to be the go-to validation mechanism for blockchain transactions and cryptocurrency exchanges on the network.
Just like how Google sometimes verifies your human identity by asking you to solve a picture puzzle or problem, proof of work is a complex mathematical problem given to a select few cryptocurrency holders and those who solve the problem the fastest help validate a purchase on the crypto network.
The person who solved the complex mathematical problem in the proof of work puzzle receives an incentive for his work.
While proof of work was initially useful, it turned out to be very unhealthy and expensive as it consumed massive amounts of energy.
Hence proof of stake was invented as a replacement to proof of work. Proof of stake works much differently compared to proof of work, where a select few cryptocurrency traders and holders are selected based on their crypto profile, behaviour, criminal records, etc. Then those with the largest stake/savings/cryptocurrency holdings are offered the chance to validate a transaction.
If you learn crypto trading from the top trading academies and schools, you will be able to obtain a much clearer picture of this process.
Proof of Stake vs Proof of Work: What are the differences?
Validation Method:
- PoW: Relies on miners competing to solve complex cryptographic puzzles. The winner gets to add the next block to the blockchain and earn a reward. This process requires a lot of computing power, leading to high energy consumption.
- PoS: Involves users staking their cryptocurrency holdings. Validators are chosen based on their stake size. This is a less energy-intensive approach.
Security:
- PoW: Security is provided through the solving of complex puzzles. If there is an attack on the blockchain, the loss would be costly both energetically and monetarily.
- PoS: If a validator tries to tamper with the system, they risk losing their staked cryptocurrency. A successful attack would require a massive stake, which is economically unfeasible.
Accessibility:
- PoW: Mining often requires specialized hardware (ASICs) which can be expensive and not friendly for new crypto miners.
- PoS: Staking is relatively more accessible. Anyone can participate in a blockchain network provided they follow the rules and have enough stake to show.
Scalability:
- PoW: Proof of Work systems can be very slow and expensive to scale as more miners join the network. This can lead to transaction backlogs and higher transaction fees.
- PoS: Adding more validators does not drain the network resources and hence is more accessible and easier to use.
Environmental Impact:
- PoW: Uses a significant amount of energy due to the high computational power required for mining.
- PoS: Considered much more eco-friendly due to its lower energy consumption.
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