PoW or PoS - Who Will Win?
May 21, 2021•277 words
Cryptocurrency seeks to address continuously growing inflation rates that are a product of an inadequate centralized financial system. The first mover in the blockchain space was Bitcoin which was praised for being a secure ledger for transactions that could be verified through a decentralized system of nodes known as proof of work. Recently, proof of work has been criticized for its excessive energy consumption. Miners can take advantage of alternative energy sources, and they may be forced to do so if consumers demand lower energy consumption. An alternative to proof of work emerged with proof of stake, a system that verifies blocks through validators staking their coins rather than using mining computers. A random lottery selects a pool of validators whose coins must be staked to discourage malicious behavior. People caught poorly staking lose the ability to validate. Furthermore, proof of stake will significantly reduce energy usage. This results from the nature of validation since verification will no longer require massive amounts of computing power. Bitcoin enthusiasts worry that proof of work is vital to decentralization, and fear proof of stake will fall prey to whales taking the lion's share of voting power. Alternatively, proof of stake supporters point to the centralization of bitcoin miners since currently four companies make up over 90% of the mining industry. Moreover, the cost of entry is extremely high which discourages new entrants. If costs fail to lower and merger talks begin, 51% or more of the miners could wind up in one company's hands. It is difficult to discern which approach is truly better, but continual increase in innovation and consumer interest is beneficial for the future of blockchain technology.