Hey everyone Happy New Years, it seems like every day I get online I see 50 new articles pop up about cryptocurrencies covering mostly the basics of the tech itself, how to trade the stuff, and predictions by “experts” and that is great. However, some are clearer than others and when I was trying to figure out the difference between these two acronyms myself I couldn’t quite find something that explained it clearly to me. So here we go.
What is POW?
POW or Proof of Work is a methodology of securing transactions on the blockchain through the process of mining which is when CPUs, GPUs, or ASIC chips solve complex equations to complete a block and receive a block reward in the form of that cryptocurrency. Most POW coins are not minable with a CPUs anymore so you must use graphics cards (GPU) or ASIC chips, which are specifically made for mining crypto. This process is basically converting large amounts of electricity into crypto currency.
A few POW coins are
- Bitcoin
- Ethereum (for now)
- Bitcoin Cash
- Litecoin
- Dash (Also has POS)
- Monero
- BitConnect (Also has POS)
- Zcash
- Steem
- Vertcoin (ASIC resistant, meaning you can only use CPUs and GPUs. Keeps it fair in the mining game)
What is POS?
So, POS or Proof of Stake is a newer idea for achieving a consensus on the ledger that does not involve mining at all. Instead Staking a coin or token is used to provide the consensus without the crazy amount of electricity and computing power needed in the POW model. Staking is done when bag holders simply hodl their POS-enabled coins in a staking wallet and they will receive payouts in that same crypto based on how many coins you are staking and how long you have been staking them in some cases.
A few POS coins are
- Dash (Also has POW)
- Reddcoin
- Neo
- Waves
- BitConnect (Also has POW)
- Vericoin
- Decred (Also has POW)
- Lisk
- Ark
- Nxt
My thoughts
So, I think both are great concepts for securing the blockchain that provide regular folks like you and me the opportunity to earn a little passive income on the side and are created by people way smarter than me. But with POW I think it is an unfair trade off to be using energy to secure this network. I am no tree hugger or anything but I do understand the concept of global warming and know that most of the world is still using dirty energy to fuel their cities, which means dirty energy is fueling this cryptocurrency revolution regarding POW. Also with some of the POW coins such as Bitcoin, mining has become so difficult that you NEED ASIC chips to mine and cannot mine with just your computer or a graphics card. Because of this the initial costs of getting started are crazy high and not an option for most people, leaving only those with large amounts of money already to get in the game and control the mining hashrate. With that kind of unbalance, it allows those with the money to get a real mining operation off the ground to have the most control when it comes to direction for the coin and price. There are coins that are POW that have made some creative ways to prevent this kind of unbalance, Vertcoin being my favorite. They are the called “The People’s Coin” because they are ASIC resistant, meaning you cannot use ASIC chips at all to mine the coin and you can only use your computer or a graphics card which allows for many more regular folks to get in and make a few coins and prevents manipulation by the large actors.
Now POS is not perfect either in that quite a few of the POS coins work off using something called a Masternode. With this you need a minimum amount of those coins then set them up in a wallet on a computer that is always on which the network uses to secure transactions and pays out minting rewards to each masternode. The problem with this is that for quite a few of these types of coins the amount of coins needed to have a masternode is still very high and still creates the same issue with barrier to entry for people who don’t already have a lot of money. Once example is Dash coins, they support the masternode structure with is good on energy use but requires 1000 coins to run a masternode and each coin is currently worth over $1000 USD or .0768 BTC. But overall, I think POS is a better alternative to POW in terms of the environment if nothing else and there are a few coins that do not require a minimum staking amount coins such as Vericoin, which I mentioned in my last post, and Neo.
In conclusion, both methodologies exist now and it may very well be the case that it is better to have a coin that uses both to allow for the best of both but only time will tell. BTW, this is not financial advice it is only my opinion and I hope you do your own research before investing into any of the coins I mentioned in this post. Until next time folks!