As expected, after publishing Crypto TREND, we received many requests from readers. In this issue we will answer the most common answer.
What changes are taking place in the cryptocurrency sector that could be a game changer?
One of the biggest changes in the encryption world is an alternative blocking authentication method called Stake Proof (PoS). We will try to elevate this explanation to the appropriate level, but it is important to have a theoretical understanding of what the difference is and why it is significant.
Remember, the basic technology with digital currencies is called blockchain, and most digital currencies use a authentication protocol (PoW).
To solve your transaction through traditional payment methods, you must trust a third party, such as Visa, Interact or Bank or Check. These trusted entities are “centralized”, meaning they have their own personal notebook, which stores the transaction history and the balance of each account. They will show you the transactions, and you must agree that it is valid, or you will have an argument. Only the parties to the transaction have seen it.
With Bitcoin and most other digital currencies, accounts are “decentralized”, meaning everyone on the network gets a copy, so no one should trust a third party like a bank, because anyone can verify the information directly. This verification process is called a “split agreement”.
PoW wants to “work” to secure a new transaction to log in to Blockchain. With crypto currencies, that verification is done by “miners”, who have to solve complex algorithm problems. As algorithmic problems become more complex, these “miners” need more expensive and more powerful computers to solve problems than anyone else. “Mining” computers are often unique, especially using ASIC chips (application integrated circuits), which are more efficient and faster in solving these difficult puzzles.
Here is the process:
- Transactions are grouped together in blocks.
- Miners verify the legitimacy of transactions in each block by solving the hash algorithm puzzle, known as the “Problem Verification”.
- The first miner will be rewarded with a small cryptocurrency to solve the block “proof of operation”.
- Once verified, the transactions will be stored in the public blockchain.
- As the number of transactions and miners increases, so does the hashish problem.
Although the PoW blockchain and decentralized, unconventional digital currencies have helped keep pace, there are some real drawbacks, especially in the amount of electricity these miners are trying to “solve”. According to the Digiconomist Bitcoins Energy Consumption Index, Bitcoin companies are using more than 159 countries, including Ireland. As the price of each bitcope increases, more and more miners try to solve the problem.
All of this prompted them to look for an alternative method of verifying the many blocks in the digital currency to validate energy consumption transactions, and the leading candidate was a method called PoS.
PoS is still an algorithm, and its purpose is the same as that of certification, but the process to achieve that goal is very different. At POS, there are no miners, but we have “verifiers” instead. PoS is based on trust and knowing that all transactions are verified in the game.
In this way, instead of using force to solve PoW puzzles, the PoS verifier is limited to verifying the percentage of transactions that reflect his or her ownership. For example, a verifier who owns 3% of ether can theoretically verify only 3% of blocks.
In PoW, your chances of troubleshooting depend on how much computer power you have. With PoS, how much crypto you have depends on the “problem”. The greater your role, the more likely you are to break the ban. Instead of winning crypto coins, the winner will receive a transaction fee.
Verifiers ‘lock’ a portion of their fund tokens. If you try to do something malicious on the network, such as creating an ‘invalid block’, your share or security will be lost. If they do their job and do not break the network, but do not have the right to confirm the ban, they will get their share or the deposit will be returned.
If you understand the basic difference between PoW and PoS, that’s all you need to know. Only those who plan to become miners or verifiers need to understand all of these two approaches and ups and downs. Most people who want to hold crypto currencies can easily exchange them and do not engage in real mining or transaction verification.
They believe that most digital currencies in the crypto sector need to be converted to a POS model in order to survive for a long time. As I write this, Ethereum is the second largest digital currency after Bitcoin and their development team has been working on the Casper PoS algorithm over the past few years. Expected to see Casper in action in 2018, Ethereum ahead of other major cryptocurrencies.
As we have seen in this field, successful implementation of major events such as Casper can significantly increase the value of Ethereum. We will keep you updated on Crypto TREND editions in the future.