The two protocols Proof of Work and Proof of Stake are currently the most well-known method, so that the participants of a Blockchain find a consensus on the included blocks. In this post we want to explain to you a simple and understandable way how both methods work, and which crypto-currencies use the protocols.
What Proof of Work (PoW)?
The Proof of Work Protocol was made known by the Bitcoin. Few people know, however, that it is not the mysterious Satoshi Nakamoto, who invented the Protocol. Actually, the idea was already developed in 1992 by the American, Cynthia Dwork, and the Israeli computer scientist Moni Naor in place to control Junk Mails. The concept of Proof of Work published later, for the first time in a scientific paper by Markus Jakobsson and Ari Juels in 1999. Nevertheless, the reminder of the Proof-of-Work was probably the biggest idea behind the white paper by Satoshi Nakamoto (2008).
Simply and briefly explained Proof of Work means that consensus in the network is generated by the “proof of work”. The participants of a Blockchain system to work, by solving a complicated cryptographic task, and thus the transactions within the network to validate. Transactions come enough together, they are grouped to a Block. A new Block (on the Blockchain) will be generated. As a reward for Solving the cryptographic task has a specified reward to the participants (Miner) (for example, a certain number of Bitcoin). The entire process is referred to as Mining.
In Detail, this means that a transaction is not carried out, that will be validated if the transaction is included in a Block. New Bitcoins are created right in this time. Although the Mining is a “community performance”, only get the one reward that generated the Block first. The distribution of the “who was first” is carried out according to the total computing power in the network. The more computing power in the network is, the more difficult the crypto is a graphical task.
In the Bitcoin network computing power has been available for some time so high that the network mainly consists of professional miners (large data centers), and Mining Pools (groupings of Smaller).
The main objective of the Proof-of-Work, it is to fend off Denial-of-Service attack (DDoS), in which the resources of an entire system will grow trying to Send large amounts of requests to a standstill.
Crypto-currencies, based on the Proof-of-Work Protocol, including Bitcoin, Ethereum (with Stand 09/2017), Litecoin and Monero.
Points of criticism of the Proof-of-Work
The Proof of Work is based upon the basic idea to a highly distributed computing power of many participants throughout the System. The stability and security of the network is to be guaranteed. In particular, when Bitcoin this is, however, becoming less and less. Due to the ever-increasing price of Bitcoin and the increasing lucrative mining Mining increased Pools. Thus the danger of a so-called 51% attack. If a Miner over a longer period of time at least 51% of Mining-power in the network, there is the danger of a Manipulation of the Blockchain and thus also of the past transactions.
The Other Bitcoin Mining is also from the ecological point of view, questionable. For the production of a block of approximately 10 minutes are required. The magazine motherboard has estimated that the power consumption for a transaction in the network is hold, with an average daily power consumption of 1.57 house.
What Proof of Stake is?
The Proof of Stake algorithm, a new Token will be unlocked by the mere possession of a Wallet (Staking). The validation of the transactions on the Blockchain is also controlled by a consensus algorithm on the value of a moderate proportion of the network is based.
This means in Detail, if you own 0.1% of all the units of a crypto-currency that you can then validate 0.1 percent of all transactions. Or in other words: Someone who owns 1 percent, you can validate 10 times as many transactions as you.
A new Block is generated, then, as a reward, as in the case of PoW, a Token. This, and the transaction fees will be regularly and randomly distributed over all of the Token-holder by using an algorithm that takes into account value of a share on the network and the duration of ownership.
Proof of Stake is compared to Proof of Work thus much more environmentally friendly. The PoW amount of computation required and the corresponding power consumption is not incurred. Thus, an attacker can perform a 51% attack, it must have more than half of the total assets of the respective Coins.
Crypto-currencies, the Proof-of-Stake (PoS) Protocol, are the u. a. Stratis, EOS (Delegated PoS), BlackCoin, PivX, and Reddcoin.