For the new blocks of crypto currencies to be produced there has to be some proof of work and this method is used when mining Bitcoin, Ethereum or Litecoin and it requires heavy mining farms like f2pool as the miners are rewarded depending on the size of block mined, but however there is also another way called proof of stake, let’s take a look at them and see how they operate.
What is Proof of Work?
This is an algorithm calculation process also known as mining of crypto currency and this process requires heavily customized computers for solving the algorithm as fast as possible and this also consume too much electricity then after the miner will be rewarded with crypto currency.
What is Proof of Stake?
This is a process whereby individuals are rewarded for just stake up their crypto and they are rewarded depending on the number of crypto they have locked up for and blocks updated.
Disadvantages of Proof of Work
Less complicated. This method is not very hard to grasp because there is no need for extra information you need to know, all you have to do buy you crypto coin and just stake them in your wallet and that’s all you have to do.
Centralisation. Individual put together their resources and investments and create a mining pool just as a means of minimizing the mining costs which are too much e.g. just like f2pool and this as an advantage but it is also a great disadvantage as there are higher risk of fraud just like what happened with Bitclub network which had a mining pool and it varnished with investors’ money. Power
Consumption. As the process requires heavy computers and the machines has to be kept on running this turns out to use too much power and makes it costly to use Proof of Work. All the above disadvantages of proof of work are all advantages of Proof of Work as it is free from all these but let us take a look on the bad side of Proof of stake
Disadvantage of Proof of Stake
On Proof of Work you are rewarded according to the number of coins you have staked so if you have a few then the reward will be little so staking is highly profitable if you stake more coins let’s say you are awarded 5% per annum for staking AWC token and you only have 50 tokens that means you will get 2.5 AWC tokens but if you stakes 5000 AWC that means you will get 250 and this makes sense as you can see a huge difference.
Both methods are good they have their good and bad side but proof of stake is much better as it is easy to understand and no knowledge required, and it is not costly as well.