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What are the advantages of PoS? 👌

1. Energy efficiency
Since it doesn’t require mining or energy-consuming hardware, it saves a lot of energy.

2. Discourages fraud
Validators lose their deposit if they cheat, reducing incentives for bad behavior.

3. Faster transactions and lower fees
Transaction confirmation times are quicker, and fees are lower compared to PoW.

👀 There’s a known exploit that perhaps Ethereum has not yet fully recovered, allowing hackers to take advantage of PoS to hack cryptocurrencies. For example, if you buy 3,000 $ETH at $3.5 and adjust the gas fee (which is customizable), a hacker could spot your transaction in the pending queue. They would then purchase 3,000 $ETH at $3.5 with a higher gas fee. As a result, the network prioritizes their transaction, pushing the $ETH price up to $4.0. The hacker would then sell immediately, achieving their goal. Meanwhile, you’re forced to buy $ETH at the market price of $4.0 set by the hacker. It’s heartbreaking!

But listen, every coin has two sides, and PoS also has its disadvantages: 😑

1. "The rich get richer"
Those who hold more assets (stakes) have a higher chance of becoming validators and earning rewards.

2. Trust in the system
Participants need to trust the network’s mechanism to operate honestly.

3. Potential centralization
Wealthy individuals or organizations with significant assets could control the network.

How does Proof of Stake (PoS) work?💪

1. Stake (deposit)
Participants (validators) must deposit a certain amount of cryptocurrency from the network (e.g., ETH in Ethereum) into the blockchain to gain the right to verify transactions. This deposit acts as a "guarantee" that they will behave honestly.

2. Selecting validators
Validators for transactions are chosen randomly or based on factors like the amount of cryptocurrency staked, the length of time it has been staked, and specific network algorithms. It’s like Alex selecting the 50 best, fastest, and most accomplished students out of 100 to compete in a professional competition. This helps reduce competition and energy consumption, unlike mining in PoW.

3. Verifying and recording transactions
The chosen validators check the validity of transactions and propose a new block. Other validators review this, and when consensus is reached, the block is added to the chain. (In simple terms, it’s like a committee sitting together to vote. If the majority agrees, the decision gets approved.)

4. Rewards
Once completed, validators receive rewards in the form of newly created coins or transaction fees from the transactions in the block they verified.

However, it’s not that simple! If a validator behaves dishonestly (e.g., tries to cheat), their stake can be "slashed", meaning they lose part or all of their deposit.

The other day, Alex explained in great detail what PoW is, its pros and cons, and its applications. But surely, when you hear about PoS, you feel curious, right? It sounds kind of similar, so how do we distinguish them? It’s confusing, isn’t it? But that’s just because you haven’t read Alex’s article yet! Keep reading!

What's Proof of Stake (PoS)? 🥰

PoS is a consensus mechanism used in blockchains to verify and add new transactions to the distributed ledger without requiring as much energy as the Proof of Work (PoW) mechanism. Maybe that’s why ETH switched from PoW to PoS in 2022! :D

What are the applications of PoW? 🤯

- Bitcoin ($BTC): The first blockchain to apply PoW and still uses this mechanism.
- Ethereum ($ETH): Previously used PoW before transitioning to Proof of Stake (PoS) in 2022 (Ethereum 2.0).
- Litecoin ($LTC): A lighter version of Bitcoin, which also uses PoW.
- Dogecoin ($DOGE): Another popular blockchain that uses PoW.

In the simplest terms, Proof of Work is like a competition to see who can solve a puzzle the fastest. The winner gets the right to write in the ledger and receive rewards. But this method can cause the entire class to expend a lot of effort and energy trying to outcompete each other in solving puzzles!

However... this of course demands massive resources. By now, it's easy to guess what the disadvantages of PoW are.

What are the disadvantages of PoW? 😑

1. High energy consumption
PoW requires an enormous amount of electricity to operate mining machines. This raises concerns about its negative impact on the environment.

2. Slow transaction processing
Processing transactions through PoW can take a lot of time (an average of 10 minutes for each Bitcoin block).

3. Risk of centralization
As Alex mentioned in the previous discussion, a team pooling resources to solve puzzles is more optimal. Therefore, strong resource groups can control most of the network's computational power, reducing decentralization.

4. Low scalability
PoW struggles to handle a large number of transactions (i.e., its scalability is low). For example, Bitcoin can only process about 7 transactions per second (TPS).

What are the advantages of PoW? 👌

1. High security
Of course, the high level of security is a major plus. Falsifying or attacking a blockchain using PoW is extremely difficult and expensive (requiring over 50% of the network's total computational power, known as a "51% attack").

2. Good decentralization
There's no need for a third party to control the network; decisions are made based on computational power.

3. High reliability
The complex puzzles help prevent fraudulent behavior. If someone wants to alter data on the blockchain, they must recalculate all subsequent blocks. As a result, PoW has been proven effective and safe for many years.

How does PoW? ❗️

When mentioning PoW, think of miners. PoW requires miners to solve a complex algorithm (a mathematical puzzle) to find a hash, which is a suitable result. The miner who finds the correct hash first gets their block verified and checked by nodes for accuracy. If valid, the block will be added to the blockchain.

You get what you work for. When a miner solves the puzzle, they will be rewarded with BTC or gas fees.

Because the problem is so complex, requiring significant effort and resources, solving it alone could take a lifetime. That's why collaboration is the optimal way to solve such puzzles. Miners can form a team to mine one block together, and the rewards are shared equally among everyone. From here, PoW also reveals its own pros and cons.

Hello friends, today I want to talk to you about two important concepts in the world of cryptocurrencies: proof of work and proof of stake. I'll explain what these concepts are, how they work, their advantages and disadvantages, and a bit about their future. Let's get started.

What's Proof of Work (PoW)? 😋

PoW is a consensus mechanism used in blockchains to verify and add transactions to the distributed ledger. PoW was initially introduced as a solution to prevent cyberattacks, but today it is best known as the consensus mechanism of blockchains like Bitcoin and Ethereum (before Ethereum 2.0).

Increased by expectations, decreased by disappointment.
Expectations create greed, disappointment brings fear.

Lowering expectations helps reduce disappointment, which is the best way to manage greed and fear!

Investing doesn't require a high IQ. It requires a high EQ. 😀