The fundamentals of Proof of Stake cannot really be comprehended in its entirety unless you
make an effort to understand what Proof of Work is. Proof of Work can very simply be described
as a protocol governing mining of cryptocurrencies. The main aim of this protocol is to keep
cyber attacks at bay while you are performing transactions associated with digital currencies. We
all know what DDoS or denial of service attack seeks to do. It is primarily responsible for
exhausting resources of our computers by sending multiple fake requests.
A Little bit of History
Historically, the aforementioned concept (Proof of Work) had existed before the inception of
bitcoin. However, it is believed that Satoshi Nakamoto integrated this particular technique in his
quest to revolutionize traditional transactions.
The Difference between Proof of Stake and Proof of Work
Proof of Work refers to the necessary determinant defining mining, which is a very costly
computer application. Those who are involved in mining compete with each other to emerge as
the first miner to solve a block problem and earn cash reward as the first prize winner.
Proof of Stock, on the other hand, is this creator of an absolutely new block which is selected
based on the kind of wealth involved. There is no block reward but only transaction fees. The
currencies involved in this system are regarded as way more cost-effective. However, this is not
the only reason why it has been largely suggested that miners should shift from Ethereum
consensus based on Proof of Work to Proof of Stake. Here are the other benefits that need to be
considered as well.
Proof of Stake: The Benefits Explored
Proof of Stake is more energy efficient than its counterpart. One does not really require to
exhaust huge amount of electricity in a bid to get a blockchain. At present, that Ethereum and
Bitcoin together end up burning electricity worth over a million dollars.
PoS is also being regarded as a safer network system because cyber attacks will become more
expensive with this particular system in place. It is at present backed by CASPER protocol which
requires validators to submit deposits in order to participate. If validators perform some actions
that fail to comply with these protocols then they might stand to lose their deposit as well.
It is associated with minimized centralization risks owing to two main reasons. Firstly, it
accommodates several techniques that employ the game-based mechanism that reduce the risk of
centralized lobbies. And even if they do end up forming, there is hardly any chance of them
posing vital threats to the network in the form of selfish mining.
Another major factor which will promote decentralization of wealth is “improved economies of
scale”. Economy of scale refers to the proportionate cost saving facilitated by an increase in
production. With PoS at work, one will get exactly 10 times higher returns for $10 million of
coins. There is no additional disproportionate gain. At higher level it is any way expected that
there will be better mass production.