In recent times, it seems that crypto asset investors are mushrooming and they are partying to enjoy skyrocketing profits, here. These crypto asset investors generally apply various concepts in surfing the crypto market.
One concept that is often used by crypto investors is the concept of proof of stake (PoS). The use of proof of stake in crypto investment itself is actually important for us to know before deciding to invest in crypto assets and mine assets.
Well, speaking of mining crypto assets, before discussing the definition and use of proof of stake, it’s a good idea to first know what cryptocurrency is and what the order is, so that we know when to need proof of stake when exchanging or buying and selling cryptocurrencies.
Get to know the concept of cryptocurrency first
Cryptocurrency is a digital, encrypted and decentralized medium of exchange. Unlike the US dollar or euro, there is no central authority to manage and maintain the value of cryptocurrencies. Instead, these tasks are widely distributed among cryptocurrency users over the Internet.
One of the assets of the popular cryptocurrency is Bitcoin. Satoshi Nakamoto first described it in a 2008 paper entitled Bitcoin: A Peer-to-Peer Electronic Money System. Satoshi Nakamoto later described the project as an electronic payment system based on encrypted evidence rather than trust.
The evidence will be encrypted and appear in the form of verified transactions and recorded in the form of a program called blockchain.
What is Blockchain?
Blockchain is an open and distributed ledger that records transactions in code. In fact, it is like a checkbook, distributed on many computers around the world. Transactions are recorded in “blocks” and then linked together in a “chain” of previous cryptocurrency transactions.
According to one of the CEOs of an African cryptocurrency exchange the concept of blockchain can be described as a book containing the writings of everything we spend every day. Each page is like a block, a whole book, a set of pages.
With the help of blockchain, everyone who uses cryptocurrencies has their own copy of this book to maintain a unified record of transactions. The software will record the occurrence of each new transaction and update each copy of the blockchain with new information simultaneously, so that all records remain consistent and accurate.
To prevent fraud, every transaction is checked using one of two main verification techniques, namely proof of work or proof of stake.
Uses of the Proof of Stake Concept
The proof of stake (PoS) concept proves that one can mine or verify their crypto transactions based on the number of coins held. Proof of stake (PoS) creation is an alternative to proof of work (PoW).
Proof of work itself is the original consensus algorithm in blockchain technology that is used to confirm transactions and add new blocks to the chain. Due to the increasing popularity of proof of stake, now there are several cryptocurrencies that use a proof of stake system, such as Peercoin, Nxt, Blackcoin and ShadowCoin.
Talking about cryptocurrencies, of course, cannot be separated from the name Bitcoin. Of course, proof of stake technology like this needs to be supported by a cryptocurrency giant like Bitcoin so that it can be integrated into all crypto users and people who are interested in investing.
In the context of Bitcoin, there are several technical challenges involved in the transition process. It is almost impossible for Bitcoin to be proof of stake, which would be very detrimental to people who have invested a lot of energy at this time.
However, in theory, many people, including the founder of Swiss cryptocurrency broker Bitcoin Suisse, predict that Bitcoin will eventually switch to a proof of stake model.
In a blockchain that uses a proof of stake (PoS) system, the code in the network is involved in verifying blocks rather than mining them like in PoW. For PoS, a deterministic algorithm selects a block validator based on the number of tokens a particular node has in its wallet. In other words, it will be kept as collateral to compete to add the next block to the chain.
Nikolajsen’s earlier prediction that Bitcoin would eventually migrate to the PoS system was indeed necessary to maintain mining on the current network. Around 2011, home PCs were able to mine Bitcoin. Then, there are ASIC chips and certain Bitcoin mining machines.
This proof of stake method has many uses. One of the uses of Proof of Stake is that it is more energy efficient than proof of work because it does not need to spend a lot of power and does not need to increase the computing power that continues to increase to solve cryptographic problems.
This is believed to attract more participation in the long term in improving network security because to validate the verification node must own or apply for a number of crypto assets to verify the block.
Therefore, in the long run, proof of stake can replace proof of work blockchain because it is more economical, scalable, and environmentally friendly. However, market regulators and policy experts will first consider this issue when finalizing strict laws regarding crypto investments.