As we expected, since the release of Crypto TREND, we have received many questions from readers. In this edition we will answer the most common.
What changes are expected, which may be changes in the cryptocurrency sector?
One of the biggest changes affecting the world of Biggest Currency is an alternative method of block validation called Proof of Stake (PoS). We will try to keep this explanation at a fairly high level, but it is possible to have a conceptual understanding of what the difference is and why it is a significant factor.
Remember that the technology behind digital currencies is called blockchain, and most current digital currencies use a validation protocol called PoW of Work.
To settle your transaction with traditional payment methods, you need to trust a third party, such as Visa, Interact or the bank or check-in clearing house. These trusted organizations are “centralized”, ie they keep their personal ledger, which keeps the history of the transaction, the balance of each account. They will show you the deals,: you have to agree that it is right or start a dispute. Only when the parties to the transaction see it.
Most Bitcoin և other digital currency registers are “decentralized”, which means that everyone on the network gets a copy, so no one has to trust a third party, such as a bank, as anyone can check the information directly. This process of verification is called “distributed consensus”.
PoW demands that “work” be done to validate the new transaction for blockchain access. With cryptocurrencies, this validation is done by “miners” who have to solve complex algorithmic problems. As algorithmic problems become more complex, these “miners” need more expensive, powerful computers to solve problems first. Mining computers are often specialized, usually using ASIC chips (Application Specific Integrated Circuits), which are more skilled and faster in solving these difficult puzzles.
Here is the process.
- Transactions are united in a “block”.
- The miners check that the transactions made in each block are legal, solving the puzzle of the hashing algorithm, which is known as “proof of the working problem”.
- The first miner to solve the block “proof of labor problem” is rewarded with a small cryptocurrency.
- Once approved, transactions are stored in the public blockchain throughout the network.
- As the number of trades increases, so does the difficulty of counting.
Although PoW helped blockchain և decentralized, unreliable digital currencies out of the ground, it has some real drawbacks, especially with the amount of electricity these miners consume to solve “proof of work problems” as quickly as possible. According to the Digiconomist Bitcoin Energy Consumption Index, Bitcoin miners consume more energy than 159 countries, including Ireland. As the price of each Bitcoin rises, more and more miners try to solve the problem by consuming even more energy.
All of this electricity consumption has led many in the digital currency space to look for alternatives to block validation, and the leading candidate is a method called “ake tsi proof” (PoS).
PoS is still an algorithm և the goal is the same as in the proof of work, but the process of achieving the goal is completely different. In the case of PoS, there are no miners, but instead we have “validators”. PoS relies on trust և the knowledge that all people who ratify transactions are playing on their skin.
In this way, instead of using energy to answer PoW puzzles, the PoS validator is limited to validating the percentage of transactions that reflect its share of ownership. For example, a validator who owns 3% of the available Ethernet could theoretically only approve 3% of the blocks.
The ability to solve proof of a work problem in PoW depends on how much computing power you have. In the case of PoS, it depends on how much cryptocurrency you have “at risk”. The higher your stake, the better your chances of breaking the block. Instead of winning cryptocurrencies, the winning validator receives transaction fees.
Ratifiers enter their stakes by “closing” some of their fund symbols. If they try to do something malicious against the network, such as creating an “invalid block”, their share or security deposit will be lost. If they do their job, do not break the network, but do not gain the right to ratify the block, they will get back their share or deposit.
If you understand the main difference between PoW and PoS, this is what you need to know. Only those who plan to be a miner or a validator should understand all the inputs of these two validation methods. Most of the general public wishing to have public currencies will simply buy them through exchange և will not participate in the actual extraction or ratification of blockchain transactions.
Most people think that digital currencies need to switch to the PoS model in order for digital currencies to survive. At the time of writing, Ethereum is Bitcoin’s second largest digital currency, and their development team has been working on their PoS algorithm called Casper for the past few years. We expect to see Casper implemented in 2018, putting Ethereum ahead of all other major cryptocurrencies.
As we have seen in the past, major events such as the successful launch of Casper could further increase Ethereum pricing. We will keep you updated on future Crypto TREND releases.
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