PoW vs PoS – mining vs staking

Probably many of you have heard about cryptocurrency mining. Perhaps you’ve even seen a digger at your neighbor’s garage, or maybe you’ve tried to dig some coins yourself. For a complete noob, the concept of digging seems completely abstract and detached from reality …  There is no wonder in such a mentality, in the traditional system of fiat currencies (PLN, USD, etc.) it is not possible for regular citizens to generate money in such a way, the complete monopoly is in the hands of central banks.

Why are cryptocurrencies kicking?

To better understand cryptocurrency mining and virtual currencies in general, it is worth considering why cryptocurrencies are being mined. Each cryptocurrency exists as long as its network is viable, so at least a handful of people maintain it by having an active client (wallet) of a given cryptocurrency on their computer or server. The chances are, however, that these people would not do it without an incentive, so the prize is needed. Almost every virtual currency has its own inviolable coin distribution scheme. By competing for the prize, users connect to the network and thus strengthen it. The prize is extracted by “finding” the so-called block that contains transaction histories from the last interval (10 min for bitcoin). In the last 12 years since bitcoin was created, many coin generation algorithms have evolved, but we can distinguish two basic and at the same time the most popular.

PoW – Proof Of Work is about connecting to the network as much computing power as possible to secure the network. The better equipment we connect, the more we will “dig” a given cryptocurrency. This process is called “mining”. The most famous representative of the PoW algorithm is Bitcoin. In the first years after bitcoin was launched, basically anyone could successfully try to mine some coins on a regular home computer. With the growing popularity of cryptocurrencies, the number of miners increased, and thus the difficulty of mining also increased. Currently, for many years, bitcoin mining requires the purchase of the so-called “Asic miner” or a dedicated hardware that generates the highest computing power with the lowest possible power consumption. Every few months, newer and more efficient Asic generations come out, making mining on the old ones unprofitable due to the high cost of electricity. Amateurs of mining iaround the world have to compete with huge farms located in China or Iran, where electricity prices are significantly lower.

PoS – Proof Of Stake is the distribution of new coins to the wallets of existing coin holders. Coins turn into a virtual mining rig, so the more we have on our wallet, the more new coins we get. We call this process “staking” or “minting”. There is no need to invest in expensive mining equipment, even an old laptop and some coins in the wallet are enough and we can compete for the extraction of the prize. The representative of the PoS algorithm is JanuszCoin. In this system, the extraction difficulty does not depend on the total computing power of the network, as is the case in PoW. The difficulty depends on the total amount of coins stacked simultaneously, i.e. coins that are on active (running) wallets. Therefore, the difficulty cannot increase indefinitely as it is limited by the number of coins in circulation, thus leaving the miners with a reasonable return on their investment.

Why JanuszCoin is PoS?

In line with JanuszCoin’s vision, we believe that in order to speed up the adoption of the project, the possibility of generating coins should be maximized and simplified. In the PoW system, the purchase of specialized equipment will always be a barrier to entry. Not everyone has the financial resources for a professional mining rig, a place where to put it, tolerate the noise or heat it generates. From the investor’s point of view, such an equipment will almost always lose value. Before its purchase pays for itself, it may break down or become unprofitable, because in the meantime more efficient equipment will appear on the market. On the other hand, to stack, it is enough to buy any number of coins that will act as a virtual miner. The value of the coins can also drop, but it can also rise many times over. Combined with the coins that will be mined, this can give you a much higher profit than with traditional mining. In JanuszCoin, part of the award goes to the owners of masternodes and to the decentralized budget, giving the opportunity to earn also in other ways, but this is material for another article.

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