Ever wondered what will happen once bitcoin mining becomes so expensive that small-scale miners can’t mine anymore? It will be tragic, right? Well, this scenario is known as the tragedy of the commons in cryptocurrency circles.
Everything you need to know about the prove-of-work algorithm
The effect could be a decline in the appeal that bitcoin and other cryptos facing a similar problem have. That’s because the whole idea of cryptocurrency is democratization of the crypto markets. The good news is that there is a solution to that, and that’s the prove-of-stake mining algorithm.
So what exactly is the prove-of-stake algorithm? Simply put, the prove-of-stake is an algorithm where miners mine based on the number of coins they hold in their portfolio.
What are the advantages of the prove-of-stake?
One of the advantages of the prove-of-stake mining algorithm is that it overcomes the energy problem of the proof-of-work algorithm as currently employed by bitcoin and other cryptos. That’s because under this system, the people holding the coins are only required to verify that they own coins, which is not energy intensive. On top of that, this mining system also reduces the complexity of solving blockchain problems, which is the reason why mining right now is not energy efficient.
It keeps crypto power democratized
The problem with the proof-of-work mining system is that it concentrates power in the hands of a few. This problem is already manifesting in the manner in which, only a few corporations now control bitcoin mining. With the prove-of-stake algorithm, anyone who owns some coins in their portfolio has a chance in the mining business.
It is safe
One of the fears towards the prove-of-stake is that it is easy to hack as compared to the proof-of-work algorithm. However, this is no longer the case. The prove-of-stake algorithm now has the Casper protocol that ensures that anyone with any ill motives loses their deposits.
What are the challenges of the prove-of-stake algorithm?
One of the biggest problems with this system is that it encourages people to hold on to their coins in the hope that they will earn from the mining process. Unfortunately, this goes against the whole idea of currency, in that currency is supposed to be spent for it to circulate and be useful in the economy. If everyone holds on to their coins then their whole purpose is defeated.
How can you take advantage of the proof-of-stake mining algorithm?
All you need to do is find a coin that approves of this proof-of-stake system. One of the major platforms that is taking an interest in this algorithm is the Ethereum platform. Once Ethereum adopts the prove-of-stake algorithm, anyone holding Ethereum will be in a position to mine and earn.
Is it the future of mining?
There is a good chance that it will be the future of mining. That’s because it keeps the crypto space democratized, which is the whole essence of cryptocurrencies. Besides, power costs for the proof-of-work mining system will not be sustainable in the long-run.