You may have heard two similar terms in the crypto world, proof-of-work and proof-of-stake. These terms are used to distinguish whether or not a cryptocurrency is mined. However, sometimes the distinction between these terms can be confusing. Let’s take a look at what the difference between these terms is.
It is a known fact that for a cryptocurrency to “come to life”, it needs to run on a blockchain. At its core, a blockchain is essentially a database. Unlike a database, however, a blockchain is open-source, making it the responsibility of everyone who runs it. Then blockchains use consensus algorithms to keep the network running and ensure only legitimate transactions are added, thus protecting the network from hackers. Basically, everyone in the network has to approve that the transaction is true and in order.
It is however necessary to distinguish between the ways cryptocurrencies are being placed in circulation and the ways transactions are being approved.
Let’s start with the easy part, proof-of-work (PoW) algorithm. This algorithm requires people to use hardware to help process transactions. Otherwise known as mining, the hardware uses its computing power to solve mathematical problems and receives cryptocurrency as a reward. Bitcoin and currently Ethereum are still running on this algorithm. It was the first generation of blockchain, used for Bitcoin as the first cryptocurrency, using it.
The goal of proof-of-stake (PoS) is to achieve the same result as PoW – to securely verify transactions on the blockchain, but in this case, verifiers do so by providing a certain number of cryptocurrency tokens for so-called staking, where they lock their cryptocurrency and get a chance to verify the transaction and thus reap the associated reward and provide network security. PoS is next generation of how blockchain can work. Compared to proof-of-work, it has several advantages, for example, you don’t need to have a super-powerful computer to verify transactions.
Our PlatonCoin (PLTC) is a cryptocurrency based on the blockchain of Ethereum. Currently, Ethereum also works on PoW algorithm, but there are plans that it will be transfered to PoS algorithm by the end of this year. PLTC is however not mined and uses blockchain of Ethereum only for verifying transactions. On the other hand, you can profit from the advantages of staking as well. You can earn passive income that way as a reward for staking your coins. Should you be interested in more information, you can contact us and find out more.