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on a decentralized blockchain, users fill each block with transactional data.

 

...

 

since there is no central authority to handle public data:

 

• how does the network agree on who certifies transactional data on the ledger?

 

• how does the network agree on who issues the next block in the chain?

 

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                incentive based protocols are needed to: 

                                

------------------------------------------------validate transactions

------------------------------------------------issue new currency

------------------------------------------------extend the chain

 

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(PoW):

• validators are incentivized to solve unique equation ID's using the power of their machine(⚡⚡⚡).

 

• the more computation you add to protocol, the more likely you will be chosen to validate new blocks.

 

• when validators find the ID, the network verifies a healthy block, and the protocol rewards freshly minted tokens to participants.

(PoS):

• validators are incentivized to lock-in tokens using deposit pools.(🔒🔒🔒).

 

• the more tokens staked in a pool, the more likely it will be chosen to certify transactions and validate new blocks.

 

• stake pool participants earn interest on their deposits from collected network transaction fees. 

 

 

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In both protocols, there's risk and reward.

 

In PoW, you risk the computing power used to get the answer, for the block reward.

 

In PoS, you risk tokens if deposit pool is penalized, the reward is getting paid interest.

 

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My name is Nathan Pease. I'm currently studying Corporate Finance at the University of South Florida. My passion is blockchain/cryptocurrency technology. I am driven to make it my career.

All writing is original and all pictures are designed by myself.

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