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Wherever there’s an opportunity to make money, there’s always going to be those who feel like they have a right to it, without putting in the effort. I’m talking about the people who take pleasure in scamming and conning people. Since the birth of cryptocurrencies, a new breed of cyber criminal have come to light, who aim to take/steal your cryptocurrency.
The creator of this new style of currency wanted a secure way to process peer-to-peer transactions, as well as other digital payments. This new era came about because of a massive breakdown in trust between people and institutions like banks and governments. Then along came the decentralised network we know as Blockchain. However, the security protocols don’t stop there.
Simply put, proof-of-work is the protocol whose main goal is to prevent cyber attacks, such as DDoS (Distributed Denial of Service). A DDoS attack is the situation where a device such as a computer gets breached, and becomes flooded with traffic, making your system overwhelmed and thus becomes exhausted and incapacitated.
The proof-of-work concept is a requirement to define a costly computer calculation, known as mining. This process was developed to verify the legitimacy of a transaction, or avoid a phenomenon called Double-spending.
The proof-of-work concept is as follows:
Transactions are bundled together in form of blocks.
Miners verify the transactions within the blocks as legitimate.
Miners then solve a mathematical problem known as the proof-of-work problem.
A reward is then given to the first person to solve the problem.
Verified transactions are stored in the public blockchain.
Cons of PoW
In order to successfully complete a proof-of-work problem, you must have a computer with a lot of processing power. Make no mistake, a computer to have a lot of processing power requires a few additional peripherals, which are expensive. As well as expensive hardware, you also have the realisation that there are a finite amount of bitcoins available so as time progresses, the mining of bitcoins becomes even more difficult.
One thing you should take note of now, is that Ethereum miners want to turn the tables and introduce a new system called proof-of-stake.
The proof-of-stake protocol was brought in as a different way to validate transactions of cryptocurrencies. I should clear up the fact, that it’s still an algorithm and the outcome still has the same goals, but the way those goals are met is a little different. But unlike the proof-of-work system that rewards miners that solve an intense mathematical equation, the proof-of-stake concept chooses a new block creator in a deterministic way, which depends on the blocks wealth.
Might Also be Interested: Beginner’s Guide: What is Ethereum Mining?
The Ethereum community and its creator Vitalik Buterin executed a hard fork, to undergo and transition from the proof-of-work system to the arguably, more efficient system.
Many have praised the PoS system as being more cost efficient, because unlike the PoW system, to use PoS, there’s no need for expensive hardware to conduct the “mining” process. It also doesn’t consume as much electricity as someone mining using PoW.
Cons of PoS
Unfortunately, there are some limitations to how effective this new system can be. For instance, small numbers of people own the majority of stakes in the network. However, there are always improvements being made to ensure the most efficient way to produce cryptocurrencies.
Both concepts have their ups and downs, but for the time being, improvements need to made to make sure the infrastructure is up to date and protects the miners from potential attacks.