Proof of Stake the Greener Alternative to Proof of Work
Proof of Stake (PoS) is a digital currency block validation process that allows a person to mine or validate block transactions based upon the percentage of all of that cryptocurrency that they hold. According to this validation model, the more coins a miner owns, the more mining power they have.
Proof of Stake (POS) was developed as an alternative to Proof of Work (POW), the original consensus algorithm in Blockchain technology. The POW consensus algorithm confirms transactions and adds new blocks to the chain, according to Investipedia (Frankenfield 2021).
Proof of Work (POW) has a very significant drawback. It requires vast amounts of energy and computing power. POW primarily requires GPUs, graphics processing units, the chips designed for fast parallel processing (usually graphics).
The cost of electricity is the primary ongoing expense in crypto mining of coins requiring proof of work. For this reason, the most extensive crypto mining operations are in regions with relatively low electricity costs (such as Texas).
With proof of stake, the percentage of coins that a miner holds determines the mining power. So instead of usually rewarding crypto to those with more computing power, the system rewards crypto to those with the more significant stake (percentage of the cryptocurrency held worldwide in unique wallets).
Bitcoin, the largest cryptocurrency by market cap, operates using Proof of Work rather than Proof of Stake.
Each block contains different transactions, which need independent verification. For the Bitcoin network to accomplish this without a third party, someone must employ their computational power to solve a cryptographic algorithm known as Proof of Work (2021, May 19).
Understanding Proof of Stake (PoS)
Once initiated, the transaction data is fitted into a block with a maximum capacity of 1 megabyte. Then, it is duplicated across multiple computers or nodes in the network (Frankenfield, 2021). The nodes serve as the administrators of the blockchain and verify the legitimacy of the transactions within each block.
Performing the verification requires that the nodes or miners solve a computational puzzle known as the proof of work problem. The first miner to decrypt each block transaction problem gets rewarded with a coin (usually a small percentage of a coin). After a block of transactions has been verified, it is added to the blockchain, a transparent public ledger.
Mining requires computing power to run different cryptographic calculations to unlock the computational challenges. Unfortunately, this computing power translates into greater demand for electricity needed for the proof of work. Hence, most cryptocurrency mining is inherently very energy-intensive.
Bitcoin consumes about 119.87 terawatt-hours per year, according to the University of Cambridge’s Bitcoin Electricity Consumption Index. This is more electricity than countries such as the Netherlands and the United Arab Emirates consume each year.
How Proof of Stake Works
For example, say, person X owns 1% of all of a crypto asset that operates via proof of stake. Also, person X operates a cryptocurrency node for this crypto asset. In this case, person X has a 1% chance of being awarded a (percentage of coin) for a block of transactions that is being validated.
Users must put their coins into a particular wallet to validate transactions via proof of stake. Unfortunately, this means essentially freezing these crypto-assets for validating blocks. Usually, this stake has to be a very high minimum amount of a crypto-asset.
As long as you have the minimum amount in this special wallet (that freezes the crypto), your chance of winning the reward (transaction fees) relates directly to the total percentage of coins you hold in this wallet.
Proof of Stake and Proof of Work use significant amounts of electricity for transaction validation. However, Proof of Stake is estimated to use as little as 0.01% of the electricity compared to Proof of Work.
References
(2021, May 19) Proof of Work VS Proof of Stake: Which One Is Better? Retrieved from BitDegree.org on 2021, August 13. https://www.bitdegree.org/crypto/tutorials/proof-of-work-vs-proof-of-stake
Frankenfield, J. (2021, April 21) Proof of Stake (POS) retrieved from Investopedia 2021, August 13. https://www.investopedia.com/terms/p/proof-stake-pos.asp
