Learn the difference between proof of work and proof of stake. How do these protocols affect miners and which protocol is most beneficial.
Hello and welcome to a new episode of Crypto Tips. Today I want to break down the difference between proof of work and proof of stake. But first let's establish that both of these are algorithms used to establish a consensus on the blockchain. You can think of proof of work like this.
Imagine you are taking a math test and you provide an answer. Even if the answer provided is correct it's the proof of work that establishes that you truly understand how to solve the problem. So proof of work establishes trustworthiness. As you might imagine proof of work also requires a lot of time, energy, and money.
Which is why networks like Ethereum are considering switching from proof of work algorithms to proof of stake. Proof of stake is less about mining and more about validating. Having stake in a company or network means you've invested your own money into that company or network. You've put your money where your mouth is, you have your skin in the game and it's a form of collateral that affirms your position in that network.
With proof of work you know the chain is valid because the work is shown but with proof of stake it's the chain with the highest collateral that is most valid. So let's say you own 4% of all of the ether. That would allow you to mine 4% of all transactions across the Ethereum network. One other way to think of these two different algorithms is this.
Agreement within the blockchain can be established by how much computing power is in agreement which is proof of work or how much of the cryptocurrency is in agreement on the network which is proof of stake. Why would anyone consider switching from proof of work to proof of stake? Well with proof of work there is the possibility that a miner or a mining pool can gain 51% majority of a blockchain meaning they would then have the power to manipulate and choose which blocks are valid for their own benefit. This is called a 51% attack and it's not good.
Going with proof of stake would remove the threat because if someone owned 51% of a digital currency it wouldn't benefit then to attack the very thing they have invested their own money into. Not to mention the fact that the act of purchasing 51% of a digital currency would cost a lot of money. Ethereum has been considering switching to a proof of stake protocol named Casper. This switch hasn't yet taken place but keep your eye out for that development.
Click the link provided in the description down below to learn more about the Casper protocol and what that would mean for the miners of Ethereum. Thanks for watching this episode of crypto tips. If you like what you see here go ahead and give this video like. Show this video with your friends so they can learn something new today and go ahead and follow crypto tips to get your weekly fix of all things crypto.