PoS stands for Proof-of-Stake, and PoW stands for Proof-of-Work. This doesn’t take away your confusion probably, so let’s start off with Proof-of-Work.
Proof-of-Work is an economic protocol (or function, if you prefer that term), requiring processing time by a computer. Right, that’s easy to digest, right? No? Well i don’t speak that language either, so let’s try and keep it simple. Proof-of-Work was originally designed to try and counter DDoS (denial of service) attacks, as well as spam. How so, you might ask? Proof-of-Work requires a little processing power, usually from your CPU, which was meant to try and change your mind about the illegal or incriminating things you had in mind. This may not sound like the perfect solution, but we had to start somewhere, right?
And this ties in with mining how exactly? In the crypto world, Proof-of-Work is used to protect your coin’s network, as well as keeping it decentralized. Simple example : you have a coin’s wallet, and it’s out of sync. Suddenly, it gets connections to the network, and it starts syncing the blockchain to it’s current state. Where do you think that is downloaded from? Other people’s wallets of course, and those people are offering a tiny amount of CPU power to keep both their blockchain synced, as well as letting other people sync with the network through them.
Proof-of-Work is a security measure, and it’s what keeps our coins secure and without any central authority, just the way we like it! As you may know, when a new coin is announced, you might or might not see it offers “PoW”. This is not an exclusive feature to just some coins, pretty much every coin has it ever since Bitcoin was launched. The question is if most of the developers even know what it does, let alone that their coin runs the protocol too….
On the other side, we have PoS, or Proof-of-Stake. You’ll like this one better, because it can earn you money by doing absolutely nothing. Well, nothing is a bit of a lie, but so is the cake! Allow me to indulge you for a few minutes on what Proof-of-Stake can mean for you loyal readers.
In the beginning, Proof-of-Stake was also meant to be a defensive protocol, supporting the Proof-of-Work function. The Proof-of-Stake protocol would look for any vulnerabilities in the Proof-of-Work system , and try to address them. One of the best known vulnerabilities is the 51% attack. A 51% attack, for those of you who don’t know what it means, is when one mining entity (being it a single miner, or a pool) possesses over half the mining share. Now, it may seem cool to you to be over half of the total coin’s network hashrate, but trust me, you do NOT want that to happen to your beloved coins.
Proof-of-Stake isn’t all about defensive strategies though. It also allows you to earn interest on the crypto you keep in your wallet. Let’s say you hold 0.5% of all the generated coins for your crypto, and your coin uses the Proof-of-Stake function. That means that you get 0.5% of ALL Proof-of-Stake generated blocks as long as you hold the coins in your wallet. You can compare it with your bank account, once per year you get interest on the balance in your savings account. Proof-of-Stake works the same, it’s rewarding you for keeping the coins in your wallet.
This has, of course, some other side effects, effects we can all benefit from (either actively or passively). Proof-of-Stake should eventually result in a steady inflation of your coins. This means an unlimited amount of coins will be generated. But wouldn’t that crash the price? Not necessarily. Most coins won’t reach their full coin cap in the near future, but the network has to keep on moving forward. As difficulties rise, their will be fewer blocks generated each day, which could lead to a complete network halt. With these Proof-of-Stake blocks, new transaction keep on being generated, and thus the network stays alive.
Proof-of-Stake also influences the transaction fees of your coins. Crypto which does not support the Proof-of-Stake function, will work with a variable transaction fee, depending on the amount of coins you are sending or receiving. With Proof-of-Stake enabled, transaction fees will be at a fixed rate, regardless of the amount of coins involved in the transaction. We like that, don’t we? Yes we do !
If you are looking for some coins using Proof-of-Stake, you don’t have to look far. Bitcoin has used it from the start, but there are other coins which do so as well, such as NovaCoin, PPCoin, and many more.
source: http://majesti.co/cryptonerd/crypto-terminology-101-pospow-part-4/
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