What is PoS Algorithm
The growing difficulty of mining PoW cryptocurrencies, as well as the inappropriateness of the algorithm after the full emission of coins, led to the emergence of a new Proof-of-Stake algorithm (proof of ownership). PoS appeared in 2012 with the aim of reducing energy costs and increasing the efficiency of mining. These issues are directly related to proof of work.
The principle of the PoS algorithm does not provide for mining in the classical sense of the word. To become a validator, a user must have an internal cryptocurrency in their wallet. The developers of a particular network set the required number of coins individually.
Unlike PoW, PoS does not generate coins when new blocks are added to the ledger. Tokens are issued to confirming nodes at the very beginning of the network existence. New nodes to write blocks are selected every few minutes. But the more coins in the wallet, the greater the weight of the node. Thus, the one who has invested more in the network has an advantage.
The PoS algorithm provides for another factor - the time of ownership of tokens. Blockchain systems are interested in long-term investments from participants. Those who bought coins yesterday are inferior to those who have them in their account for several months.
Thus, users with large and old rates are preferred. This is fraught with network centralization, because large players have privileges over other participants. But on the other hand, the owners of large accounts are interested in the welfare of the network. In order to carry out a "51% attack", hackers need to buy most of the network's coins, the value of which will collapse immediately after the attack. It makes no sense for scammers to attack themselves.
Gradually, the PoS algorithm is replacing PoW. This is due to the fact that the proof of stake requires significantly fewer computational functions, which reduces the complexity and cost of the network. The entry threshold for block validators is much lower. Mining has almost no requirements, so there is no need to develop powerful hardware. The mechanism can easily work on ordinary user computers.
Advantages and disadvantages
PoS is very energy efficient. To complete any transaction, much less electricity is required than when using PoW.
PoS is secure because any fraudulent activity can threaten the loss of the entire bet, as well as the right to create blocks.
A PoS network usually has at least three basic node selection principles that the next block creates. These are: high bet selection, block random selection and coin age selection. These principles allow a large number of users to create nodes, since it is easy and affordable.
Random selection of blocks makes the Proof of stake (PoS) network more decentralized and mining pools are no longer needed.
The price of coins will be more stable because there will be less need to issue new coins as a reward.
PoS nodes (validators) receive a transaction fee as a reward.
Of the obvious cons. This is the danger of taking possession of 51% of the coins in the pre-sale of coins. In theory it is possible, but in practice it is rare.
Of course, cryptocurrency is still evolving and we may see other cryptocurrency concepts and algorithms in the near future. Moreover, each of us can become a part of this future. That is why we are studying all the intricacies of cryptocurrency trading.
