You may have heard the words Proof-of-Work (PoW), Proof-of-Stake (PoS) and Delegated Proof-of-Stake (DPoS) if you have spent some time in the cryptocurrency world.
But what do they mean?
Mining
In cryptocurrency mining, Proof-of-Work (PoW), Proof-of-Stake (PoS) and Delegated Proof-of-Stake (DPoS) have their beginnings.
Mining helps prospective cryptocurrency owners to attempt to verify a transaction and get paid instead of buying cryptocurrency on exchanges.
PoW, PoS and DPoS are all types of crypto-currency mining. But each allows for mining in a very different manner.
Trusted consensus
Cryptocurrency does not require the value of a currency to be checked by a third party (ie a bank). Instead, to establish the value of a currency or transaction, currencies depend on trusted consensus in the crypto community.
For the value of cryptocurrency and its holders, this community-based approach is what makes PoS, PoW and DPoS so important: they are each considered a consensus algorithm.
Proof-of-Work
Two key purposes are fulfilled by proof-of-work (PoW):
To provide protection by stopping cyber attacks, such as DDoS, and deterring them.
To allow miners without third party intervention to validate and provide consensus for a transaction in a blockchain.
PoW works by supplying miners with a way to solve complex math algorithms, which are basically challenging puzzles.
This method is open to the public, but it is incredibly difficult to verify the code because of the difficulty of the transaction. With miners working to check the validity of the code, the process of doing so becomes a sprint.
The first miner to solve the block puzzle is rewarded with block possession. This confirmation also establishes the transaction's consensus.
PoW's greatest advantage is that it provides a transaction with protection. Blockchain transactions are so complicated that, given the time, resources and effort taken to do so, they discourage would-be hackers from trying to solve them.
PoW's drawback is that it absorbs large quantities of electricity. One research in 2015 showed that the amount of energy needed to settle a single bitcoin transaction was equal to more than 1.5 average American households per day's energy consumption.
High-energy use may also have a negative effect on the crypto-currency value. Since energy costs are paid in fiat, PoW-related expenses will push down the cryptocurrency's value.
Proof-of-Stake
Like PoW, Proof-of-Stake (PoS) is a way for a transaction to both verify and have consensus. With the aim of validating transactions and building new blocks, PoW rewards miners who solve mathematical issues.
But the maker of a new block is selected with Proof-of-Stake, based on investment in a particular currency-how much stake the entity has in the currency.
More stake, more power.
To be clear, stakes are not specified solely by the amount of currency that an individual owns. The period of ownership is often calculated by (among other factors).
So, for instance, if a person has recently bought a large amount of a cryptocurrency, his currency stake is likely to be lower than that of someone who has owned the currency for a longer period of time.
For their interaction with the currency, PoS rewards a miner.
An algorithm determines the miner with the highest stake in the currency in the PoS scheme. You can think of it as working in the opposite direction of PoW (in which a miner solves a transaction).
The importance of the stake is that PoS offers protection for a transaction. The high cost of buying and owning large quantities of a cryptocurrency, combined with being paid for the duration of time it is kept by a PoS algorithm, discourages hackers because they are unlikely to pay huge sums for a currency and then hold on to them for a long period of time.
PoS has emerged primarily as the primary alternative to PoW because so much less energy is needed. This reduced cost of energy makes PoS an attractive option to owners of miners and cryptocurrencies.
Without PoW's energy and time expenditures, serious miners can now gain value in cryptocurrencies.
Delegated Proof-of-Stakes
With the addition of a powerful community-based factor, Delegated Proof-of-Stake (DPoS) closely resembles PoS. DPoS, like PoS, depends on miners to have a big stake in the currency.
Moreover, it also includes group validation of the ownership interest of any person in the currency.
The purpose of DPoS is to make network management more effective by making it managed by a small group of people.
In most cryptocurrency communities, the way this works is that the community votes to create a group of people to run the network. These individuals are often called Witnesses.
In a network, there are usually 100 witnesses, each of whom is paid for their support. The top 20 witnesses who have the most interest in the currency and are sponsored by the group have the most control over the network and a salary is always charged.
DPoS gives group members governance of who serves their interests in the cryptocurrency, similar to the Board of Directors of a business.
The number of tokens they possess affects the voting power of representatives, so those with more tokens have a stronger vote than those with less tokens. DPoS helps members of the society to vote out those who adversely influence the community (for instance, if someone is not protecting the security of the cryptocurrency).
These three consensus algorithms are just the beginning of how stability, validity and ownership of currencies can be given by the cryptocurrency group.
As cryptocurrencies expand, safety becomes paramount and societies change, while citizens are likely to come up with different ways to ensure that property is secured and respected by these currencies. Thus, the most dedicated individuals would be rewarded with ownership of cryptocurrencies.
You should about PPoS (Pure Proof of Stake), Consensus of Algorand