Ethereum co-founder Vitalik Buterin recently confirmed that he was helping Dogecoin Foundation migrate from the current Proof-of-Work (PoW) to Proof of Stake (PoS) crypto consensus mechanism. PoS refers to processing transactions and creating new blocks in a blockchain in an efficient and environment friendly manner. In the case of cryptocurrency, the database where transactions are recorded is called a blockchain.
For the uninitiated, the Dogecoin Foundation is a nonprofit organization that aims to support the development of the meme coin and has launched its first-ever road map detailing a number of new projects.
In a recent interview with UpOnly, Buterin confirmed that he was involved in this project, saying that virtually all cryptocurrencies will follow the same steps. “All major cryptocurrencies except one have an active plan to switch to Proof-of-Stake. I think the arguments will be even easier to make when you know that Ethereum is Proof-of-Stake and when you know that Dogecoin’s plans are more advanced and Zcash’s plans are more advanced.”
What is POS? How is it better than PoW?
Both PoS and PoW are methods of mining cryptocurrencies. A chain of private computers — a network — is constantly working towards authenticating the transactions by solving complex cryptographic puzzles. This is called cryptocurrency mining. Most legacy cryptocurrencies, such as Bitcoin, rely on a proof-of-work mechanism. PoW mechanism is a traditional form of crypto mining where thousands of computers are required in a mining facility, consuming high electric power.
So, mining essentially, is contributing to blockchain and validating transactions. In the case of PoS, anyone who own any amount of cryptocurrency can put up their tokens as collateral towards the development of blockchain. In return, the user is rewarded a fixed percentage of the pledged assets as rewards when a new block is added to the blockchain. This process is called the ‘staking’ of crypto assets.
A block reward refers to the number of cryptocurrencies you get if you successfully mine a block of the currency. For every new block created, miners get additional ownership in the token over time via network fees, newly minted tokens or other such reward mechanisms.
Earlier, proof-of-work was an appealing concept because people just needed an ordinary computer to mine coins. Nowadays, with major cryptocurrencies like Ethereum migrating to PoS, specialized and expensive computer devices are needed to mine tokens. Much of mining is now done by large, well-financed pools, which has cut out the general public from the equation. However, with PoS mechanism any crypto holder can now easily contribute to mining and earn specialised rewards.
Additionally, PoS is better than PoW because you don’t really need a mining equipment which drastically reduces energy consumption and increases transaction speeds. However, there is still no consensus in the crypto community about the PoS model being better than PoW. Some users and well-known names in the market, such as Jack Dorsey, point out that this new method does not offer as much security to the network as proof of work offers.
Meanwhile, there is no sign that Bitcoin, the world’s largest cryptocurrency will migrate to PoS system. On the other hand as highlighted by the Dogecoin Foundation, PoS can offer rewards to the entire Dogecoin community that wants to participate in this process, not just large miners, as with Bitcoin. “It allows everyone, not just the big users, to participate in a way that repays them for their contribution to running the network while giving back to the whole community through charitable causes,” Vitalik added.