The Rise of Proof of Stake Coins for a Sustainable Digital FutureJuly 23, 2021
As fledgling technologies, cryptocurrency and blockchains have seen many new trends, services and iterations arise in a short timeframe. While some, such as non-fungible tokens (NFTs), have faded in popularity as quickly as they arose, others have more long-term potential. Proof of Stake (POS) coins seem to fall into the latter category.
POS coins like Cardano, NEO and Polkadot have seen some tremendous growth over the past year. In March, Ethereum announced it plans on moving to a POS system within the next few months. For some investors, though, what these coins are and why they’re so appealing may not be immediately evident.
What Is a Proof of Stake Coin?
Most cryptocurrencies, like Bitcoin, operate on a Proof of Work (POW) model. They maintain their integrity as a reliable currency by enticing miners to verify transactions through complex cryptographic problems. The first miner to verify a given transaction receives new coins or tokens as a reward.
Proof of Stake systems also use transaction verification to introduce new coins into the market but do so differently. Users called “validators” put up a stake of their tokens into the exchange to verify a block on the blockchain, then earning a reward. In most cases, the number of tokens they receive as a reward is proportional to how much they put at stake.
POW coins remain the most widely used cryptocurrencies, but POS is accelerating. With Ethereum moving to this system, POS could become the dominant crypto model over the next few years.
Why Have POS Coins Become Popular?
The primary draw of Proof of Stake is that it consumes far less energy than POW. POW coins like Bitcoin are infamously energy-intensive, thanks to the complex calculations that verify their transactions. Miners trying to earn more tokens get caught up in an arms race of processing power, leading Bitcoin to consume more electricity than Argentina every year.
Since most electricity today comes from fossil fuels, this energy consumption translates into substantial carbon emissions. As more people have realized the importance of sustainability, energy-hungry processes like Bitcoin mining have fallen out of favor.
POS coins are more environmentally friendly since they don’t require such complex computation to verify transactions. In fact, Ethereum claims it will use 99.95% less energy after moving to a POS system. Even more impressively, sustainability-focused blockchain network Casper is 136,000% more energy-efficient than Bitcoin, according to a recent audit.
Another reason behind POS’s recent success is its security. To perform a 51% attack, a hacker would have to stake at least 51% of the crypto currently in circulation. In a POW system, they could do the same by taking control of computers on the network. POS removes that option, making a blockchain-wide attack financially unviable.
The Future of POS Coins
As POS coins become increasingly prominent, they could face several changes. Regulatory changes are almost inevitable. The IRS has increased its cryptocurrency enforcement efforts in the past few years and will likely continue doing so. This could have unique implications for Point of Stake cryptocurrencies.
More politicians are pushing environmental tax legislation to encourage going green. As a far more eco-friendly alternative to POW, POS coins may be taxed at a lower rate in the future.
Many governments have started to regulate cryptocurrency more heavily in the past few years. In the push towards sustainability, more administrations could establish incentives to use POS cryptocurrencies over their more energy-intensive alternatives. As the idea of national cryptos becomes more popular, some nations may even use POS systems for an official state cryptocurrency.
Of course, at this point, these possibilities are little more than speculation. Cryptocurrency and its implications have been volatile and unpredictable throughout their history and could continue to be in the future. How POS will shape crypto has yet to be seen.
The Crypto World Is Changing
Cryptocurrency is a rapidly evolving field. As these resources and the blockchains that support them grow, new uses and twists on the technology will continue to emerge. Concepts like POS can help crypto achieve more mainstream appeal and secure a safe digital future.
Whether POS coins will reshape the world of crypto is uncertain. For now, though, they hold impressive potential, and big names like Ethereum getting involved could signify significant future growth. If more currencies embrace the Proof of Stake model, crypto could move past some of its most glaring obstacles.
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