As you deep dive into cryptocurrencies, there are different terms that you will get to know. Two such terms are Proof Of Work and Proof of History.
These terms may sound like a complicated thing. But if you want to know crypto well, knowing about these terms is extremely important.
Since these protocols are crucial for how cryptocurrencies like Bitcoin and Ethereum work. These protocols help verify blockchain transactions without the need for a third-party, which makes crypto decentralized.
However, if you don’t know anything about these two terms, then let me go ahead and help you out:
What Is Proof-Of-Work (PoW)?
Proof of work is the most well-known protocol that most newbie crypto investors are familiar with. As it is the main mechanism for Bitcoin and Ethereum. Also, it is the main mechanism when it comes to Bitcoin or Ethereum mining.
The concept of Proof of Work came with the need for decentralization. Since it was a key vision of cryptocurrencies, a way was needed to confirm transactions without the involvement of a third-party. And the first solution to that was proof of work.
The experts from The Money Mongers explains the concept of Proof of work further as a method of verifying and adding new blocks of transactions to a cryptocurrency blockchain. To do this, validators use computing power to generate a hash which is a long string character.
The hash matches the target hash for the current block, and the crypto miner who does this wins the right to add that block to the blockchain and receive rewards.
Most of the cryptocurrencies started with the proof of work concept. Since it is the consensus mechanism used by the first cryptocurrency, Bitcoin. Also, it provides great security but has a major impact on the environment.
How Does Proof-Of-Work (PoW) Work?
On a proof of work system, blocks with transactions needed to be verified by network participants before being added to the chain.
As you already know that every cryptocurrency has a blockchain which is basically a public ledger that stores records of blocks of transactions.
With proof of work cryptocurrencies, each block has a specific hash. For the block to be confirmed, a crypto miner needs to generate a target hash which is less than or equal to that block.
To verify blocks, crypto miners use computing power to solve complex cryptographic puzzles. On a successful block verification, the block gets added to the chain, and the validators receive Bitcoin as a reward.
The reason why proof of work works is because finding the target hash is difficult but verifying it is not. Even the process is so complicated that it prevents any manipulation of transaction records. At the same time, once a target hash is found, it is easy for other miners to check it.
Pros Of PoW
- Security: Proof of work is extremely secure. Also, cryptocurrencies like Bitcoin and Ethereum are well established with diversified hash rates. As a result, hacking into these networks is extremely hard.
- Rewards Miners: Proof of work lets miners earn rewards for validating blockchain transactions. This allows the miners to earn a passive income.
Cons Of PoW
- Expensive: These days, mining cryptocurrencies requires Bitcoin, and Ethereum requires extreme computing power. This means you have to invest in excellent mining hardware and pay hefty energy bills. As a result, getting started with crypto mining as an individual is extremely expensive and hard.
- Verification Times: Verifying blocks with proof of work takes a minute for Bitcoin. As a result, Bitcoin isn’t an ideal solution for making multiple and faster transactions. Instead, it acts more like a ledger to store value.
What Is Proof-Of-History (PoH)?
Proof of History is the creation of Solana – a popular cryptocurrency. Solana combined proof of stake with proof of history and gave it a hybrid consensus algorithm.
Proof of history makes sure that the blockchain is extremely fast. But at the same time, it keeps its security top-notch and the network decentralized.
All the Solana events and transactions are hashed with the SHA256 hash function. As a result, Solana takes an input and processes a unique output which is extremely difficult to figure out.
Solana then takes the output of a transaction and uses it as input for the next hash. This sequence of transactions is now built into the hashed output.
This hashing process creates a long and unbroken chain of hashed transactions. Also, this characteristic creates a clear, verifiable sequence of transactions that a validator adds to a block without the need for a conventional timestamp.
Moreover, the hashing process takes a certain time to complete, meaning that validators can easily check how much time has passed.
How Does Proof-Of-History PoH Work?
In Solana’s Whitepaper, it was explained how proof of history works by creating a ledger with a verifiable clock. As a result, notes in the network know the recorded passage of time without needing to rely on other nodes.
Proof of history nodes basically have their own internal clock that verifies events and the passage of time. The proof uses a verifiable delay function known as VDF to hash incoming events and also notes when events occur.
When other nodes look at the sequence of hashes, they can immediately tell the order in which events occurred without having to validate time with other nodes.
Solana’s proof of work is an extremely complicated subject to understand. But thankfully, Solana created a short explainer video on YouTube. So you can check that out to know the proof of history better.
Moreover, Solana also introduced a lot of other technological innovations to improve the efficiency of the network. For instance, it uses a Turbine protocol that condenses data into smaller sizes to lower bandwidth requirements and increase TPS. It also uses Sealevel, which lets smart contracts run in parallel.
Overall, Proof Of History has great potential. But just like any other consensus algorithm, there are a few drawbacks you need to deal with. One such drawback is that if you want to participate as validators at Solana, your hardware must meet strict requirements. You can know more about it on the validator requirements page.
Pros Of PoH
Low Fees: Compared to most other cryptocurrencies like ETH, Solana has a lower transaction fee. As a result, Solana is an ideal solution for making frequent transactions and transferring money.
Scalability: Since transactions are extremely fast on the Solana network. As a result, it brings scalability to the whole picture.
Cons Of PoH
Centralized Concerns: Solana currently has under 1200 validators to validate transactions on its network.
Fewer dApps: Solana is often called an Ethereum caller. But it doesn’t have too many dApps or decentralized apps built on it. There are about 350 dApps built on Solana, while on Ethereum, the number of built dApps is more than 3000.
Final Words:
So that was all for Proof of Work vs Proof of History. On one side, Proof of Work and Bitcoin is what started the crypto revolution. But thanks to the continuous development, concepts like Proof of History emerged.
However, as an investor or crypto enthusiast, it is important for you to know the long-term viability of a coin’s validation technology.
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