The blockchain industry has voted with its feet, and bitcoin-like mining for cryptocurrency has largely been consigned to the dustbin of history, at least for new chains.
Bitcoin, the first and largest blockchain, uses mining – also known as proof-of-work (PoW) – as its consensus mechanism, meaning how secure the blockchain is, new information is on it added and new bitcoins are distributed. Other major blockchains that use similar mechanisms include Bitcoin Cash, Litecoin, memecoin Dogecoin, and privacy coin Monero.
Mining has gotten a lot of bad press in recent years, and not without reason. For one thing, it uses an enormous amount of energy.
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See also: Crypto Basics Series: What is a consensus mechanism and why is it destroying the planet?
On the other hand, it doesn’t fit very well. With new information added every 10 minutes only, Bitcoin reaches four or five transactions per second (TPS). Not enough for a modern payment system that wants to compete with Visa’s current 65,000 GST maximum.
What are the two main reasons blockchain #2, Ethereum, should start transitioning from PoW to Ethereum 2.0, a much more environmentally friendly proof-of-stake (PoS), after a process of development of several years.
And yet, many people still believe that PoW is the best solution, especially for payment cryptocurrencies used primarily as a payment currency – more secure and decentralized than PoS and able to increase its speed using blockchains Layer2 like Lightning Network.
Related: Today in Crypto: Lightning Network Payment Volume Grows 400% Per Year
So here is the case for PoW.
The case for PoW starts with the blockchain’s security built into its consensus mechanism.
Basically, it’s a race to solve a math puzzle, with more computing power giving you a better chance of coming first. Even down about 70% from its all-time high, $20,000 in bitcoins means $125,000 is distributed every 10 minutes. As a result, the computing power poured into this race uses almost as much power as used annually by Pakistan.
Unlike mining, Proof of Stake uses validators that essentially put up a bond for good behavior, which is reduced for poor quality of work or dishonest behavior. Validators are selected at random, but based on the size of their bet. So the more crypto you can afford to lock in as a stake, the more you will earn.
The argument that PoW is safer starts with the cost of mounting a 51% attack that would allow a bad actor to take control of the blockchain and double the tokens. You would need to earn 51% of all computing power to attack an established PoW blockchain. On a PoS blockchain, you would need 51% of the staked funds.
In both cases, security depends on the maturity of the blockchain, the number of people mining or staking. But, the argument goes, mining requires something outside of the blockchain itself, an external source that cannot be hacked. Proof-of-stake validation has a much lower barrier to entry, although major blockchains make it high enough that funding attacks are impractical.
Additionally, bitcoin proponents point out that much of the energy currently used by bitcoin miners is renewable — especially since China kicked out miners using its horribly polluting old coal-fired power plants.
Then there’s the simpler argument: Bitcoin’s PoW security has stood the test of time. Proof-of-stake, especially at scale, is much more recent.
Especially on smaller chains, it’s all too easy for validators to build bigger empires, especially since PoS staking usually involves letting other investors lend their tokens to a validator to increase their stake and degree. control they have.
The flip side of this argument, however, is that the cost of Bitcoin mining equipment and the energy it requires is so high that only a few large mining companies control the majority of it.
And there are PoS offshoots like Delegated Proof of Stake that have a limited number of validators. The problem with this system became clear when the Ronin network hack, in which a $625 million crop chain bridge protocol was hacked when a hacker compromised the passwords of five of the nine validators.
Read more: In a $625 Million Hack, a Bigger Crypto Security Problem Is Exposed
“This hack reflects the ongoing challenges blockchains and operators face in balancing user experience and security,” Flora Li, head of the Huobi Research Institute at cryptocurrency exchange Huobi, said in March. .
With growing popularity, she noted, operators “took shortcuts to relieve network bottlenecks, reducing the number of nodes that needed to be validated for transactions to just five out of nine nodes, which facilitates exploitation by hackers”.
Increasing the number from five to eight, as Ronin operators did, “does not solve the fundamental problem of how proof-of-stake blockchains can keep transactions fast, user-friendly, and energy-efficient without compromising security. ”.
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Case For Crypto PoW: Dirtier, But More Secure
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