Table of Contents
Introduction
The Crypto Switch to Staking concept of cryptocurrency participation has become one of the most discussed aspects of owning and profiting from digital assets, partly due to the ability to generate returns over bank savings interest rates.
Bitcoin and Proof-of-Work
Bitcoin was the first blockchain-based asset to achieve general recognition and widespread adoption as a secure digital currency thanks to a simple yet ingenious invention called Proof-of-Work (PoW).
PoW provided a solution to a coordination problem long thought to be intractable, called the Byzantine Generals problem.
PoW was a two-pronged economic solution to this problem by introducing an accurate cost for dishonest behavior and a reward system to incentivize good behavior and attract more participants, thereby growing your network and also strengthening your security.
Issues with Bitcoin’s Proof-of-Work
The growth of Bitcoin soon meant that the difficulty level was beyond the reach of the computational power of standard computers. In the beginning, anyone with a modest home computer could mine Bitcoin. But after a few years, solving a block on your own required powerful computers. So by 2013, crypto switch to staking miners needed highly specialized devices explicitly built to solve these incredibly complex equations, called ASICs (Application-Specific Integrated Circuits).
This Situation Created Two Main Problems
Only increasingly expensive and powerful devices could solve the equations needed to produce more blocks. As a result, only wealthy individuals and companies could participate.
It led to a form of centralization in which only a handful of entities were responsible. In addition, some saw it as detrimental to cryptocurrency for most of the computing power secured by Bitcoin.
Proof-Of-Stake Is An Environmentally
after the emergence of Bitcoin, a new consensus mechanism called Proof of Stake (PoS) was introduced. At the time, it was thought that Bitcoin was already consuming around $150,000 worth of electricity per day.
In their joint article, Sunny King and Scott Nadal proposed using a deterministic algorithm called “staking” to add new blocks. Choosing successful miners (or nodes or participants) based on the number of crypto tokens they held. Much less technical knowledge would be required, as people would only need to stake crypto and not calculate complex math problems on a proof-of-work chain
The Monopoly Of The Rich
It is slightly related to the point we just left. Suppose the general idea of a distributed network is to avoid concentrating power in the hands of a few. In that case, PoS could be even easier to manipulate since the richest will be able to acquire the most shares.
The Problem Of Nothing At Stake
Nothing at Stake is a theoretical problem on the proof-of-stake network when block creators have nothing to lose during a network fork.
Conclusion
It is tough to expect how Bitcoin might evolve in the coming decades. Still, if there is one thing we can say from its 12-year history. It is that its developers and the technical community are very conservative regarding changes. As a result, blockchains have quickly migrated, merged, and even re-emerged as entirely new algorithms. Bitcoin has been slower to adopt new fundamental technologies.