Blockchain networks require a consensus mechanism to validate new blocks added to the chain. Consensus mechanisms enable blockchain nodes to agree on the accuracy of each block of transactions before adding it to the chain, preventing fraudulent transactions and errors. Cryptocurrencies use two different mechanisms to reach a consensus on which new blocks to add to their blockchains: Proof of Work and Proof of Stake.
What exactly is Proof of Work? Mining new coins necessitate a significant amount of computing power due to the Proof of Work algorithm. Its algorithm works by having all nodes solve miners’ cryptographic puzzles. Proof of Work rewards people who have better and more equipment. Still, it causes miners to use massive amounts of electricity and encourages mining pools, making it more centralized than decentralized.
To address this issue, other blockchain networks devised a new consensus that is far superior to Proof of Work: Proof of Stake.
What is Proof of Stake? Proof of Stake is also a consensus mechanism used in blockchains to process transactions and create new blocks. It essentially protects the blockchain. It was designed to be an alternative to Proof of Work (POW).
Validators, rather than miners, are used in Proof of Stake. A certain amount of coins must be deposited into the network by a node. You can think of this as a deposit for Proof of Stake. If a node is chosen to validate the next block, he will verify that its transactions are valid. If everything is in order, the node approves the block and adds it to the blockchain. As a reward, the node receives the fees associated with the transactions contained within this block.
The distinction between Proof of Work and Proof of Stake is substantial. Proof of Stake does not allow everyone to mine new blocks, so it consumes less energy and is more decentralized than Proof of Work, which uses mining pools. Mining pools are groups of people who join forces to increase their chances of mining a new block rather than just collecting rewards, which can be dangerous because they may begin approving fraudulent transactions. Proof of Stake is less expensive because it does not require costly mining equipment. Both consensus mechanisms have advantages and disadvantages. They all have the same primary goal, but they achieve it differently.
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