Crypto Proof of Work (PoW), Proof of Stake (PoS) & Other Proofs

Crypto Proof of Work (PoW), Proof of Stake (PoS) & Other Proofs

General Information Research Tutorials
April 29, 2021 by DanCurranJr
410
Every day, millions of transactions are performed on various blockchains. To perform a transaction, one has to pay a transaction fee. Transaction fees are paid to cryptocurrency miners in exchange for their transaction verification work. All transactions that take place on the blockchain are verified by a consensus mechanism on the network. In short, a
pow-vs-pos

Every day, millions of transactions are performed on various blockchains. To perform a transaction, one has to pay a transaction fee. Transaction fees are paid to cryptocurrency miners in exchange for their transaction verification work.

All transactions that take place on the blockchain are verified by a consensus mechanism on the network. In short, a consensus mechanism is a fault-tolerant mechanism that is used in computer and blockchain systems. It is used to achieve the necessary agreement on a single data value or a single state of the network among distributed processes or multi-agent systems, such as with cryptocurrencies.

Now, Let’s take a deeper dive into what kind of consensus mechanisms are used in blockchains.

Proof of Work

Proof of Work is a protocol with the main purpose of countering cyber attacks such as a DDoS attack. Proof of Work is an idea originally published by Cynthia Dwork and Moni Naor in 1993. In Nakamoto’s 2008 Bitcoin white paper, Proof of Work is perhaps the greatest idea, as it allows for trustless and distributed consensus.

A trustless and distributed consensus system ensures that (for example in the case of Bitcoin) payment can be made and received without the need for a third party. Traditional payment methods (Banks, CreditCard, Paypal) require a party to handle the transactions. These parties also keep their own register of the transaction history. With Bitcoin and other cryptocurrencies, everyone has a copy of this register (blockchain). No third party is required because everyone can immediately verify the information/transactions.

Back to Proof of Work. This protocol is a prerequisite for the intensive form of calculations (also called mining) that must be performed to create a new group of trustless transactions on the blockchain.

Mining is necessary for two reasons:

    1. Verifying the legitimacy of transactions.

    2. Create new digital cryptocurrency by rewarding miners for performing reason 1.

To verify these transactions, miners have to solve a mathematical puzzle. The first miner to solve this problem gets the reward (in new cryptocurrency). Verified transactions are stored in the public blockchain. This puzzle is a bit more difficult with each new block. That is why miners have to work more efficiently.

Proof of Stake

Proof-of-Stake is the validation of transactions and the creation of blocks on the blockchain by means of the betting (staking) of crypto coins. In contrast to Proof-of-Work, where transactions are validated through the use of computer power.

With Proof-of-Stake, nodes validate the transactions and nodes create blocks by putting their crypto coins in a staking wallet. These crypto coins must remain in this wallet and cannot be traded. With a normal version of Proof-of-Stake, people with few crypto coins will not be able to stake. The more crypto coins you have, the more likely you are to be chosen by the network as a node.

When one has 1,000 crypto coins, one is 10 times more likely to be chosen as a node than someone who has 100 crypto coins. A node that staked more crypto coins is, therefore, more likely to create a new block on the blockchain and validate transactions. Therefore, it will make more money than a node that puts in less money.

Why does a node behave in the group interest? Can’t a node act in self-interest and validate transactions in its own interest? This could be done when a node has a majority. This is 51% of all crypto coins and therefore hardly affordable by anyone. Furthermore, a node will never do this. A node uses its crypto coins to be able to validate transactions. When a node does not act in the group interest, a node will run a great risk of losing the crypto coins and no longer being admitted to the network.

Proof of Stake variants

Over the years, many new Proof of Stake variants have been created. These so-called enhanced versions try to improve the original Proof of Stake consensus mechanism by implementing small changes such as how users are chosen to be the next staker, or how to create a better user and transaction anonymity. Let’s take a look at what kind of POS variants are out there.

Proof of Storage

Instead of using a blockchain, the Proof of Storage network uses a blocktree. Also instead of seeing every single transaction listed, the user will only see transactions that are relevant to them. Each node on the blocktree contains a blockchain.

Proof of Stake Time (PoST)

Proof of Stake Time uses coin age. Coin age is a way to display how long a coin has been in one’s possession in order to prioritize it for use in transactions or mining. It is calculated by multiplying the number of coins by the average amount of time in blocks they have been possessed.

With Proof of Stake Time, instead of using the amount of coins to calculate age, they use the period of time the coins have been held at the specific address. This method was implemented to avoid making the rich, richer, which many Proof of Stake methods do.

Proof of Stake Anonymous (PoSA)

With Proof of Stake Anonymous, all transactions are made invisible by other nodes of the network. These nodes receive rewards for helping in the anonymization of the transaction. Other nodes provide inputs and outputs to the transactions, making it impossible to determine the source and destination of the transaction.

Proof of Checkpoint (PoC)

Proof of Checkpoint is a hybrid system that utilizes any Proof of Stake system with a Proof of Work system. The idea of this concept is to mitigate attacks on the Proof of Stake system; however, it is still subject to an attack on a node that has been offline for an extended period of time and can in turn be used to provide false information about the blockchain.

Every x amount of blocks on the Proof of Stake system requires a Proof of Work block to be mined. Each Proof of Work block contains no transactions and are directly linked to both the Proof of Work network and the Proof of Stake network.

Proof of Stake Velocity (PoSV)

Proof of Stake Velocity rewards users based on how many coins they have and how actively they use them.

Delegated Proof of Stake (DPoS)

The way Delegated Proof of Stake works is that it has users voting for “delegates” who are then given the power to earn rewards from running a full node. This method is supposed to be more efficient and should protect all users from unwanted regulatory interference.

Proof of Activity

Proof of Activity (POA) was proposed as a variation to Proof of Stake. It is a method that compliments Proof of Work and helps prevent a 51% Attack, which is when a user or pool controls 51% or more of a network’s mining hash rate. Proof of Activity, in short, selects a random peer from the network to sign a new block. This method requires continuous data exchange. In order to reduce traffic, the block template does not include the transaction list and is instead added by the last signer.

Proof of Burn (PoB)

The way Proof of Burn works is that users are providing proof that another user has burned some of his/her coins, in the process of sending a transaction to an address that is unspendable. This method only works with coins mined from Proof of Work cryptocurrencies. Users will try to burn the most amount of coins to hopefully win the block reward. Most times Proof of Burn has been introduced to seed other coins by destroying the value of one.

Proof of Importance (POI)

Proof of Importance was introduced to promote economic activity. Each account is assigned an importance score that proxies its aggregate importance to the economy. This method helps make sure that all the computers on the network agree with each other and can stop people from spending coins they do not have. Users who are important can harvest and earn rewards.

Proof of Capacity (PoC)

Cryptocurrencies that utilize Proof of Capacity, also known as Proof of Space, use Hard Drive Mining to validate new blocks. Burst coin was the first to introduce this concept. Proof of Work miners burn resources whereas Proof of Capacity allows you to use allotted space on your hard drive to mine. An algorithm is used to create chunks of data called plots by repeatedly hashing public keys. The more space that you have, the more likely you are to mine a block.

In Conclusion

Consensus mechanisms are essential to the functioning of distributed systems such as blockchains.

There is no “perfect” consensus mechanism, and chances are that there never will be, but it sure is interesting to see newer cryptocurrencies coming out with their own consensus mechanism protocols.

Helpful? Useful? Enlightening?

Please consider making a small donation to CoinTutor.org. Any little bit helps the articles keep coming and the forums running. Pick a coin below, donate, and Thank You!

  • Bitcoin
  • Ethereum
  • MetaMask
  • Tether
  • Cardano
  • Xrp
  • Polkadot
  • Binance coin
  • Litecoin
  • Stellar
  • Bitcoin cash
  • Dogecoin
  • Usdcoin
  • Uniswap
  • Bitcoin sv
  • Tron
  • Cosmos
  • Monero
  • Tezos
  • Synthetix
  • Dash
  • Maker
  • Dai
  • Neo
  • Vechain
  • Ontology
Scan to Donate Bitcoin to 3GW2f1Du91uQFpVULZP4fwcLLTnfjUHDSY

Donate Bitcoin to this address

Scan the QR code or copy the address below into your wallet to send some Bitcoin

Scan to Donate Ethereum to 0x18b4388E6CE05b65F7Afd2a175ab9Da20324404D

Donate Ethereum to this address

Scan the QR code or copy the address below into your wallet to send some Ethereum

MetaMask

Donate to Coin Tutor Via Meta Mask

Scan to Donate Tether to 0x38D0d0039A238dE4e38FBf6dd53Aa81fdD90884E

Donate Tether to this address

Scan the QR code or copy the address below into your wallet to send some Tether

Scan to Donate Cardano to addr1qy3qmcf2dg4u0wytq3u33s8j8kzat60hsyrvmgftsvkhu73zphsj563tc7ugkprerrq0y0v96h5l0qgxeksjhqed0eaqq43up2

Donate Cardano to this address

Scan the QR code or copy the address below into your wallet to send some Cardano

Scan to Donate Xrp to rEbQS57RrYczvd16tLCrFrXfGufeyBUWQ

Donate Xrp to this address

Scan the QR code or copy the address below into your wallet to send some Xrp

Scan to Donate Polkadot to rEbQS57RrYczvd16tLCrFrXfGufeyBUWQ

Donate Polkadot to this address

Scan the QR code or copy the address below into your wallet to send some Polkadot

Scan to Donate Binance coin to bnb1mu5j9t5al68hrg4dwu34g2a8cn0qjegfc4fase

Donate Binance coin to this address

Scan the QR code or copy the address below into your wallet to send some Binance coin

Scan to Donate Litecoin to M8u4f6LL9APeLH5MAupK7geefMaBT7Pko6

Donate Litecoin to this address

Scan the QR code or copy the address below into your wallet to send some Litecoin

Scan to Donate Stellar to GAZUFMYP5IGQ3DUDADBBFKDLVBDM5DPDRRLTY4IZR5G7VANKGNH6NWJS

Donate Stellar to this address

Scan the QR code or copy the address below into your wallet to send some Stellar

Scan to Donate Bitcoin cash to qzm8xx7qqz6sttq4l5c44dua3ftaud9rvqdwypfd0f

Donate Bitcoin cash to this address

Scan the QR code or copy the address below into your wallet to send some Bitcoin cash

Scan to Donate Dogecoin to DAuyfeoKBtNhsjKmyvDtg1ANXvhXZpYHGE

Donate Dogecoin to this address

Scan the QR code or copy the address below into your wallet to send some Dogecoin

Scan to Donate Usdcoin to 0x38D0d0039A238dE4e38FBf6dd53Aa81fdD90884E

Donate Usdcoin to this address

Scan the QR code or copy the address below into your wallet to send some Usdcoin

Scan to Donate Uniswap to 0x38D0d0039A238dE4e38FBf6dd53Aa81fdD90884E

Donate Uniswap to this address

Scan the QR code or copy the address below into your wallet to send some Uniswap

Scan to Donate Bitcoin sv to 1EnacS3kV3d7jcHEJ8pc4hqeWcXgsidtdu

Donate Bitcoin sv to this address

Scan the QR code or copy the address below into your wallet to send some Bitcoin sv

Scan to Donate Tron to TF7TRB3sZkjYF44VVP1V5tyg8xY8UTXffY

Donate Tron to this address

Scan the QR code or copy the address below into your wallet to send some Tron

Scan to Donate Cosmos to cosmos1tws495gqqznj2l47v06adsfe4a7plqpug4txfh

Donate Cosmos to this address

Scan the QR code or copy the address below into your wallet to send some Cosmos

Scan to Donate Monero to 489Qx82MSwFAhRgXGoU9NrV3baCPB5vbm22EUkSizTSULcxqZ5ayisg5hWLYZegUxXJ6yuhCFGjxxaf1rQ4R67wuKh2Ykui

Donate Monero to this address

Scan the QR code or copy the address below into your wallet to send some Monero

Scan to Donate Tezos to tz1cRXMBHmqNx6NJywWEE8rnq4hkXtbHAjHm

Donate Tezos to this address

Scan the QR code or copy the address below into your wallet to send some Tezos

Scan to Donate Synthetix to 0x18b4388E6CE05b65F7Afd2a175ab9Da20324404D

Donate Synthetix to this address

Scan the QR code or copy the address below into your wallet to send some Synthetix

Scan to Donate Dash to XcYTxXipDksvyP2JJxxYe7YkKqxK5fBad5

Donate Dash to this address

Scan the QR code or copy the address below into your wallet to send some Dash

Scan to Donate Maker to 0x38D0d0039A238dE4e38FBf6dd53Aa81fdD90884E

Donate Maker to this address

Scan the QR code or copy the address below into your wallet to send some Maker

Scan to Donate Dai to 0x38D0d0039A238dE4e38FBf6dd53Aa81fdD90884E

Donate Dai to this address

Scan the QR code or copy the address below into your wallet to send some Dai

Scan to Donate Neo to AXqCkUcXbMGqs7JXkdCynz8AsejGTjmp3u

Donate Neo to this address

Scan the QR code or copy the address below into your wallet to send some Neo

Scan to Donate Vechain to 0x9AAD975d55684447AD7364105eb0aA91698fC4e6

Donate Vechain to this address

Scan the QR code or copy the address below into your wallet to send some Vechain

Scan to Donate Ontology to AZ3muytbGzc3D4CY33tRnRTnBxn39TYNdG

Donate Ontology to this address

Scan the QR code or copy the address below into your wallet to send some Ontology

Add a comment