Cryptocurrencies operate differently than the money that we are used to. Because they are solely electronic, there is no physical currency to trade. Instead, each network creates a record or “blockchain” of every transaction that takes place on the network.
There are currently two main types of mechanisms used to verify transactions on the network: Proof-of-Work (PoW) and Proof-of-Stake (PoS). While the industry was founded on PoW, many networks are moving to PoS. The MIT Technology Review dubbed PoS one of the top ten breakthrough technologies of 2022, while the European Union almost banned PoW.
Consensus Mechanisms
A “consensus mechanism” is the process of validating transactions across many nodes of the network. Consensus mechanisms are necessary for cryptocurrency networks to maintain the accuracy and validity of their blockchains, or ledgers. Since no central authority controls the ledger, a consensus of the majority of the network verifies each transaction to make sure it does not contain incorrect or fraudulent transactions.
With a centralized payment network such as PayPal or Venmo, verification is easy. A single authority controls the ledger and acts as a trusted party to verify or clear the transactions. An individual cannot “double-spend” on these networks.
On a cryptocurrency network, however, because of the ease with which a digital currency can be reproduced without a central authority verifying transactions, an individual could attempt to sneak duplicate transactions into the blockchain before the next block is added.
Proof-of-Work
PoW was implemented in 2009 by Satoshi Nakamoto as the consensus mechanism for Bitcoin, the original cryptocurrency network. The Bitcoin network continues to operate using PoW.
So how does Proof-of-Work work? When someone wants to transfer funds from one bitcoin address to another, he announces the transaction to the network by signing it with his private key and sending it to the recipient address via its public key. The transaction is bundled with other recent transactions into a block that is added roughly every ten minutes to the Bitcoin blockchain.
The blocks are created through “mining.” For each block, Bitcoin miners (computers) compete to solve a cryptographic puzzle, using processing power, which requires a significant amount of electricity. Once the first miner solves the problem, a block of verified transactions is added to the chain, and they become part of the permanent record. In exchange for their work, the miner receives a reward in bitcoin.
Christian-Driven America-First Precious Metals.
Before markets collapse, the smart play is to move wealth or retirement to precious metals. Contact Genesis Gold now to make it happen smoothly with no hassles from a group driven by fellowship.
Mining is “the work” in the term “Proof-of-Work.” Miners use their computing power, or “work” to “prove” the network. Because the network creates a permanent record of verified transactions, PoW eliminates the need for a central authority.
Proof-of-Stake
Proof-of-Stake emerged in 2013 as an alternative to PoW. It is used by networks such as Cardano and Solana. The Ethereum network plans to switch from PoW to PoS in the future, and its creator, Vitalik Buterin, is a major proponent of PoS as a consensus mechanism.
Whereas PoW relies on the work put in by miners to create the longest blockchain, PoS involves network participants “staking,” or locking up their crypto assets, in exchange for becoming validators of the blockchain. Validators are randomly selected by the network to verify the blockchain. PoS validators are similar to PoW miners, but instead of work, their “stake” allows them to validate the network. As Campbell Harvey states in DeFi and the Future of Finance,
Validators make themselves available by staking their cryptocurrency and then they are randomly selected to propose a block. The proposed block needs to be attested by a majority of the other validators. Validators profit by both proposing a block as well as attesting to the validity of others’ proposed blocks.
PoS uses a process of “slashing” that can be used to penalize bad actors. If a validator proposes or validates bad blocks, or is inactive on the network and doesn’t sign transactions, they can have their stake “slashed.” Slashing helps the PoS network discourage downtime and double signing, both of which are harmful to the network.
Tradeoffs Between PoW and PoS
PoS networks don’t require anywhere near the same amount of energy as a PoW network because they don’t involve thousands of specialized computers churning away simultaneously, consuming significant electricity, “working” to solve a cryptographic puzzle. The significantly lower amount of energy required by PoS to achieve consensus is viewed by many as a positive feature of the protocol. Further, because PoS networks do not require many computers “working” to achieve consensus, they potentially exhibit increased throughput, or the ability to process transactions faster.
That said, there are significant drawbacks to PoS. Cryptocurrencies are, on the whole, presented to the public as “decentralized,” but networks using PoS consensus mechanisms are drawn into a process that moves away from any meaningful decentralization. As Lyn Alden elaborates,
With a proof-of-stake system, the more coins you have, the more voting power you have, and those with the coins are also the ones earning the new coins from staking. Since they don’t need to expend resources to stake, they can simply increase their overall staking amount as they earn ongoing coins from staking rewards, and exponentially grow their influence on the network over time, forever. Network dominance tends to lead to more network dominance, in other words.
The governance of PoS networks, therefore, becomes more like that of a centralized corporation than a decentralized cryptocurrency. And with respect to monetary networks, a corporate board of unelected officials is arguably similar to the fiat system we already have.
Further, PoS networks face technical challenges that PoW networks do not. PoS algorithms involve hundreds of thousands of lines of code, while the PoW algorithm can be created with a few hundred lines of code.
✔️ Boost your immune system with Nutraceutical by Dr. Zev Zelenko
✔️ Beat supply chain issues and future pharmaceutical tyranny with 5 Antibiotics Delivered to Your Home
✔️ Be ready to help yourself and your family with the World’s Best Med Kit
As a more concrete example, the Solana network routinely suffers from partial outages, recently for a full 48 hours, due to “excessive duplicate transactions.” This problem arises because one essentially needs a data center to run a Solana validator, which gives the network higher throughput but sacrifices decentralization and security. While networks prioritizing throughput is not inherent to PoS, PoS networks use high throughput as a way to distinguish themselves from their competitors (Solana vs. Cardano). This leads PoS networks to value throughput over decentralization and security.
The Future of Consensus Mechanisms
Current cryptocurrency adoption rates outpace early adoption rates of the internet. “Crypto” is here to stay; it will be intricately linked to the future of money and financial markets.
PoW uses more energy than PoS, but it’s battle-tested, decentralized, and secure. Policymakers seeking to ban PoW, or thinking it can be easily replaced by PoS would do well to keep the inherent and important tradeoffs between the two consensus mechanisms in mind.
Levels of decentralization and trust vary across cryptocurrency networks, and different networks serve different purposes for consumers. The choice of consensus mechanism between PoW and PoS is a key determinant of the decentralization, efficiency, and security of the cryptocurrency network.
About the Author
David Waugh joined AIER in 2020 and currently works as the Managing Editor. He is a Don Lavoie Fellow with the Mercatus Center and he previously worked as an associate for S&P Global Market Intelligence.
David is a graduate of Hampden-Sydney College where he received a BA in Economics. While at Hampden-Sydney, he was a Senior Fellow with the Center for the Study of Political Economy and worked in the Economics department as a teaching assistant.
Image by Sergei Tokmakov Terms.Law from Pixabay. Article cross-posted from AIER.
Most “Conservative” News Outlets Are on the Big Tech Teat
Not long ago, conservative media was not beholden to anyone. Today, most sites are stuck on the Big Tech gravy train.
I’ll keep this short. The rise of Pandemic Panic Theater, massive voter fraud, and other “taboo” topics have neutered a majority of conservative news sites. You’ll notice they are very careful about what topics they tackle. Sure, they’ll attack Critical Race Theory, Antifa, and the Biden-Harris regime, but you won’t see them going after George Soros, Bill Gates, the World Economic Forum, or the Deep State, among others.
The reason is simple. They are beholden to Big Tech, and Big Tech doesn’t allow certain topics to be discussed or they’ll cut you off. Far too many conservative news outlets rely on Google, Facebook, and Twitter for the bulk of their traffic. They depend on big checks from Google ads to keep the sites running. I don’t necessarily hold it against them. We all do what we need to do to survive. I just wish more would do like we have, which is to cut out Big Tech altogether.
We don’t get Google checks. We don’t have Facebook or Twitter buttons on our stories. We don’t have a YouTube Channel (banned), an Instagram profile (never made one), or a TikTok (no thanks, CCP). We’re not perfect, but we’re doing everything we can to not owe anything to anyone… other than our readers. We owe YOU the truth. We owe YOU the facts that others won’t reveal about topics that others won’t tackle. And we owe America, this great land that allows us to take hold of these opportunities.
Like I said, I don’t hold other conservative sites under too much scrutiny over their choices. It’s easy for people to point fingers when we’re not the ones paying their bills or supporting their families. I just wish there were more who would make the bold move. Today, only a handful of other major conservative news outlets have broken free from the Big Tech teat. Of course, we need help.
The best way you can help us grow and continue to bring proper news and opinions to the people is by donating. We appreciate everything, whether a dollar or $10,000. Anything brings us closer to a point of stability when we can hire writers, editors, and support staff to make the America First message louder. Our Giving Fuel page makes it easy to donate one-time or monthly. Alternatively, you can donate through PayPal or Bitcoin as well. Bitcoin: 3A1ELVhGgrwrypwTJhPwnaTVGmuqyQrMB8
Our network is currently comprised of six sites:
- NOQ Report
- Conservative Playlist
- Freedom First Network
- Based Underground
- Uncanceled News
- Our Gold Guy
We are also building partnerships with great conservative sites like The Liberty Daily and The Epoch Times to advance the message as loudly as possible, and we’re always looking for others with which to partner.
Some of our content is spread across multiple sites. Other pieces of content are unique. We write most of what we post but we also draw from those willing to allow us to share their quality articles, videos, and podcasts. We collect the best content from fellow conservative sites that give us permission to republish them. We’re not ego-driven; I’d much rather post a properly attributed story written by experts like Dr. Joseph Mercola or Natural News than rewrite it like so many outlets like to do. We’re not here to take credit. We’re here to spread the truth.
While donations are the best way to help, you can also support us by buying through our sponsors:
- MyPillow: Use promo code “NOQ” to get up to 66% off AND you’ll be helping a patriotic, America First company.
- ZStack: Improve your immune system with the Z-Stack protocol or rejuvenate your body from vaccines or shedding with Z-DTox by Dr. Vladimir Zelenko.
- OurGoldGuy: Tell them JD sent you in your request to buy gold and it will help us… AND (wait for it) you’ll be helping a patriotic, America First company.
- MyPatriotSupply: Stock up on long-term food, survival gear, and other things that you’ll need just in case things don’t recover and we keep heading towards apocalypse.
We know we could make a lot more money if we sold out like so many “conservative” publications out there. You won’t find Google ads on our site for a reason. Yes, they’re lucrative, but I don’t like getting paid by minions of Satan (I don’t like Google very much if you couldn’t tell).
Time is short. As the world spirals towards The Great Reset, the need for truthful journalism has never been greater. But in these times, we need as many conservative media voices as possible. Please help keep NOQ Report and the other sites in the network going. Our promise is this: We will never sell out America. If that means we’re going to struggle for a while or even indefinitely, so be it. Integrity first. Truth first. America first.
Thank you and God Bless,
JD Rucker
Bitcoin: 32SeW2Ajn86g4dATWtWreABhEkiqxsKUGn