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Sunday, August 6, 2017

Cryptocurrency 101: Proof of Work vs. Proof of Stake

Cryptocurrency 101: Proof of Work vs. Proof of Stake

Satoshi Nakamoto, the visionary behind the Bitcoin, is viewed by many as the father of cryptocurrencies. The elusive figure unveiled their vision for a completely decentralised digital currency in November of 2008, propitiously following the global financial crisis of the previous year. Whoever the pseudonymous Satoshi Nakamoto was, their research and reference implementation of Bitcoin protocol started a revolution which inspired a rich market economy and culture by the name of “cryptocurrency.”

At the heart of Nakamoto’s revolution was a simple yet ingenious mechanism. Now officially known as “proof of work,” the white paper detailed a consensus scheme which allowed a peer-to-peer network of nodes to manage transactions in a completely decentralised manner. For the first time in history, funds could be transferred from one person to another with no intermediary, delay, or extortionate transaction fees.

Bitcoin’s inception gave rise to numerous alternative cryptocurrencies, collectively referred to by the apt but unimaginative label of “altcoins.” Over the past nine years, blockchain technology has matured significantly, and altcoins are no longer restricted to proof of work to reach network unanimity. Different mechanisms for achieving consensus exist, with their own sets advantages and disadvantages.

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