It’s globally known that blockchain is safe for making online fund transaction, but very few of us are aware of the process how blockchain transactions are verified and blocks get generated. In crypto terminology, the calculation done for the crypto transaction is called the proof of work.
Precisely, proof of work of cryptocurrency is a mathematical requirement for defining an exclusive computer calculation, called mining. Mining of crypto coins is done for creating a new group of a peer-to-peer transaction on the distributed ledger, called blockchain. Cryptocoin like Bitcoin uses proof of work.
It will be rather self-explanatory to say that proof of work is one of the many blockchain unison algorithms used for ensuring the fact that transactions on the blockchain ledger are all authentic and under the active consent on the specific status of the public ledger. Proof of activity is an assorted approach that combines two other frequently used algorithms, and these are proof of work (POW) and proof of stake (POS).
Proof of Work (POW)
Proof of work is a practice that has the prime objective of deterring cyber-attacks like DDoS, (Distributed Denial-Of-Service), which targets the properties and potential of a computer system by exhausting it by sending many fake requests. POW is widely accepted because POW allows distributed and trustless consensus.
Mining is widely dependent on POW and it fulfils two purposes.
- To authenticate the legality of a transaction, or for dodging the alleged risk of double-spending;
- To generate new digital currencies by offering a reward for miners for performing the prior task.
When you are doing crypto mining, there are some actions take place behind the scene. Let’s check them precisely:
- Transactions are collected and stored into a block;
- Miners validate that transactions within each of the block are authentic;
- In order to do so, miners should explain a mathematical puzzle called as proof-of-work(POW) problem;
- A reward is offered to the first miner who solves each block’s problem;
- Verified transactions are kept stored in the public edger called blockchain.
Proof of work is not only used by the Bitcoin blockchain but also by Ethereum and many other blockchain networks.
Proof of Stake (POS)
Proof of Stake is another way to authenticate transactions based and to get the distributed consensus. It is an algorithm like POW and it fulfils the same purpose, but the methodology involved with this process is different than POW.
POS is a mining idea was suggested first on the Bitcointalk forum in the year 2011, but the first cryptocurrency that used this method was Peercoin in the year 2012. Later other cryptocurrencies like ShadowCash, Nxt, BlackCoin, NuShares/NuBits, Qora and Nav Coin used this mining method. The prime features of POS are:
- No block reward is granted.
- All the digital currencies are beforehand created in the beginning, and their number never alters.
- As in the POS system, there is no provision for block reward, the miners are allowed to take transaction fees.
- In the POS system, miners are called forgers.
How PoS Different from PoW
- Proof of Stake (POS) is well-organized.
- In this mining process, electricity and hardware are not needed.
- No GPU or High End Computer required.
- More people are instigated to run the nodes due to advanced efficiency.
- POS is not perfect for a dispersed consent protocol.
- The “Nothing At Stake” problem, can be avoided in different ways.
- POS is Sustainable solution for blockchain
Variations of Proof of Stake
Proof of Stake Anonymous (PoSA):
This mining algorithm was first introduced by Cloakcoin, where transactions are kept cloaked from other users who receive a reward for supporting the anonymity of the transaction. Other users offer inputs and outputs to the transaction and help in maintaining the secrecy about the source and the end point of a crypto transaction.
Delegated Proof of Stake (DPoS):
Delegated Proof of Stake (DPOS) is an innovative method of safeguarding a crypto-currency network. DPOS efforts to resolve the problems of Bitcoin’s traditional POW system, and POS system of Peercoin and NXT. DPOS introduces a layer of technological equality to balance the negative impact of centralization.
Proof of Importance (POI):
Proof of importance is a blockchain consented algorithm, first introduced by NEM. POI is the mechanism used to regulate the prompt that decides about the network participant’s (nodes) eligibility so that they can be added to the block of the blockchain ledger. It is done by a process that is called NEM (as ‘harvesting).
Proof of space:
Proof-of-space (PoSpace), also known as proof-of-capacity (PoC). It is a means of displaying a legitimate interest in a service (for example, in sending an email) by distributing a non-trivial quantity of memory or disk space to resolve a challenge offered by the service provider. The concept was framed by Dziembowski.
Proof of Stake Time (PoST):
Proof of Stake-Time (PoST) is an unusual approach to form an agreement by presenting a stake-time factor, where the prospect to stake enhances over time. It also augments the decentralization of the consent, well beyond present standards.
Proof of Checkpoint (PoC):
Proof of Checkpoint is a hybrid scheme that uses any POS (Proof of Stake) system with a POW (Proof of Work) system. The idea of this concept is to alleviate attacks on the Proof of Stake system; however, it is the subject to an attack on a node which has found offline for a lengthy period of time and can be used to offer untrue information about the blockchain.
These are the popular proofs related to cryptocurrency and crypto transaction. However, these algorithms are quite complex and can be explained only by technological expression. Only detail study about these proofs will help you to understand the schemes in details.