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Comparison of Proof of Work and Proof of Stake

In today's technological world, we increasingly encounter terms such as "Proof of Work" (PoW) and "Proof of Stake" (PoS). These are mechanisms behind the operation of many cryptocurrencies used today. Let's delve deeper into this topic.

Proof of Work (PoW) - Mining in the digital world

Imagine Proof of Work as a big mathematical contest. Miners try to solve a complex mathematical problem - finding the right nonce number. The goal of the miner is to find a nonce that, when added to the transaction data and processed through hashing, creates a hash that meets a certain criterion (e.g., having a specific number of zeros at the start). Most nonces don't produce the correct hash, so the miner has to try again and again with different nonce numbers. When a miner finds a nonce that leads to a hash meeting the desired criteria, they have the "correct solution" and can announce to the network that they've found a new block, earning a mining reward. The nonce is then stored in the block, serving as proof that the miner expended the necessary computational power to find this solution.

The cycle of changing the nonce, solving the hash, and checking for all requirements repeats until the requirements are met and the block is sealed.

What's a nonce? Imagine wanting to send a secret message in an envelope. To ensure this message is unique and unaltered, we add a small, random piece of paper with a number called a "nonce". This number is special because it's used just once. Then, we seal the envelope with a unique stamp. This stamp is made by combining the message content and our special nonce number through a complex mathematical process called "hashing".

Now we have a secret message in an envelope with a special seal. To verify the message's integrity, we compare this seal with another widely accepted seal created by the network (in our case, the blockchain). If both seals match, all is good, and our message joins the big ledger where all other messages reside - our blockchain. This process ensures messages (or transactions) are secure and cannot be easily forged or modified.

Miners use specialized hardware called ASIC miners for solving. Another encoding system is the script, which is highly compatible with graphic cards, making rigs comprising special or gaming cards ideal for mining. Various hashing functions exist, as do different requirements, with some instances necessitating special hardware or graphic cards.

- Bitcoin

- Litecoin

- Bitcoin Cash

- Monero

- Dash

Risks and benefits of Proof of Work:

+ Independent involvement in the cryptocurrency operation by thousands of miners

+ Miners don't need to own a particular cryptocurrency

+ A guaranteed reward in the form of new cryptocurrency

- Increased computational requirements

- High energy consumption

Proof of Stake (PoS) - Users in action

In the Proof of Stake system, users themselves create new blocks. Cryptocurrency holders with a larger share and longer holding periods have a higher chance of creating a new block, enhancing network security as these individuals have a vested interest in its stability.

Traditional "mining" isn't the conversation here, but rather "minting" or "forging". Block creation rewards consist of transaction fees, not newly minted coins.

- Ethereum

- NEO

- PIVX

- Cardano

- Solana

Risks and benefits of Proof of Stake:

+ Lower computational requirements

+ Greater community involvement in block verification

+ Typically, no inflation