Since the dawn of cryptocurrencies, the majority of cryptocurrencies have relied on the Proof of Work consensus algorithm for mining and confirming transactions. Proof of Work was a revolutionary concept that allowed the development of cryptocurrencies by generating new blocks to record transactions.
However, as the number of transactions increased, a new problem of network congestion emerged. The Proof of Work consensus algorithm was not developed thinking about the large number of transactions that take place today. The result of this network congestion was increased transaction times, costs, and power consumption.
As an alternative, the Proof of Stake consensus algorithm was developed. This alternative offers a much cheaper, faster, and environmentally friendly way to mine new blocks. Platforms such as Bitcoin Latinum are one of the first to implement the potential of Proof of Stake in Bitcoin hard forks, and then the rest followed, including the second-biggest cryptocurrency, ETHER, who also plans to use Proof of Stake.
How does Proof of Stake differ from Proof of Work?
Proof of Work relies heavily on mining hardware to mine and create new blocks. It is an energy-intensive process that is now facing bad network congestion and, as a result, high transaction costs. On the other hand, Proof of Stake relies on staking existing tokens to mine new ones and does not require specialized mining hardware.
Here are the key differences between PoS and PoW consensus algorithms.
Proof of Work
- Proof of Work uses heavy computation-based problem solving to earn rewards making the mining process more costly.
- Due to the heavy computation-based mechanism, it requires a lot of energy which results in a massive carbon footprint.
- PoW has become decentralized over time because of the monopoly of a few mining groups over the mining hardware, making it susceptible to 51% attacks.
- Due to network congestion, PoW based cryptocurrencies such as Bitcoin and Ethereum face slow and costlier transactions.
Proof of Stake
- Proof of Stake relies upon staking tokens and various nodes verifying the transactions to mine new blocks, making the process of generating new blocks more affordable.
- PoS can cut down the electricity consumption by 99%, making it more environmentally friendly and sustainable.
- PoS is completely decentralized and is not susceptible to a 51% attack making it more secure and transparent.
- As PoS has a better hash rate, it does not face any network congestion and offers faster, cheaper, and safer transactions, as is the case with LTNM.
While the Proof of Work consensus algorithm is still very popular, it requires a complete makeover to cope with the new demands and standards. Bitcoin Latinum is an excellent example of the potential of the Proof of Stake protocol and is aptly regarded as next-generation Bitcoin.