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Downsides of Proof-of-Work and Proof-of-Stake, explained


Downsides of Proof-of-Work and Proof-of-Stake, explained

Not all consensus mechanisms are born equal — and the differences between major blockchains can have a huge effect on gas fees and transaction speeds.

Wherever you’re involved in PoW or PoS, the barriers to entry can be pretty high.

As we mentioned earlier, becoming a profitable Bitcoin miner is far from easy. There’s staunch competition from giant farms with vast resources, and getting your hands on the latest equipment can be pretty expensive. What’s more, with the cost of electricity rising in many parts of the world, and block rewards halving every four years, there’s a real danger you could end up spending more money than you make. 

Proof-of-Stake throws up a different set of challenges. Ethereum’s new network requires validator nodes to stake 32 ETH — and given how this is worth tens of thousands of dollars, this is an investment that’ll be out of reach of many typical consumers. These funds can also be slashed if technical issues inadvertently mean you act against the network’s best interests. While it is possible to gain exposure to staking rewards for less, this means placing your trust in centralized providers.

But there can be other approaches. Some blockchain networks offer a blend of masternodes held by authorized organizations, and validator nodes that are shared between all wallet users. Here, their interests are protected through a node representative verified through the PPoC mechanism. A big benefit here lies in how everyday users won’t have to worry about the technical intricacies of keeping a blockchain running smoothly, but they’ll still be incentivized to stake.


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