In this article we will explain what it is Proof of Stake and what are the characteristics of Cardano.
For those of you new to the crypto space, you may have heard of the immense power that Bitcoin mining takes up. (As of this year, it has an electricity consumption comparable to the entirety of Norway and Argentina). But there’s a new kid on the block – Cardano (ADA) that runs on a Proof-of-Stake mechanism, in contrast to Bitcoin’s Proof-of-Work.
The Cardano team has been working on a new blockchain called Ouroboros. A Proof-of-Stake consensus mechanism perfectly designed to be more energy-efficient and secure than Bitcoin.
This post will explain how the Cardano team has implemented their Proof-of-Stake mechanism in Ouroboros and further explain how it works. We’ll also outline why they chose to implement their consensus mechanism instead of using one of the existing ones (like Ethereum’s Casper or EOS’ DPoS).
“Proof of What?”
Proof-of-Work, a mechanism proposed by Bitcoin’s anonymous founder Satoshi Nakamoto keeps a decentralized network secure by ensuring no single person controls the currency. There are already plenty of resources out there that delve deep into this. Still, it’s hugely energy inefficient because, for the sake of security, it forces those maintaining the network (miners) to compete among themselves by solving math puzzles that do nothing aside from heating your computer.
What is Proof of Stake? In contrast, Proof-of-Stake mechanisms such as Cardano’s Ouroboros, NEM’s Mosaic, and Ethereum’s Casper all rely on a set of designed rules to make sure the currency is secure without requiring miners to expend energy.
In Ouroboros’ case, the slot leader (the rough equivalent of a miner on the Bitcoin network) is randomly selected according to how many coins they’re staking to produce the next block. There’s no such competition to see who can melt more GPUs! When they successfully make the next block, the slot leader gets rewarded with ADA (Cardano’s currency) for the effort.
“What does staking mean in crypto? Does that mean you risk your funds?”
Technically, some Proof-of-Stake protocols bear the risk of you losing your stake or pledge, but that’s the case only if you attempt to generate a fraudulent block. So for most intents and purposes, no – staking is very safe.
Finally, according to Cardano’s website, Ouroboros operates at 4 million times the efficiency of Bitcoin’s Proof-of-Work to validate each transaction (Yes, you read that right.) So if environmental concerns have stopped you from delving into cryptocurrencies, take heart that the future of the technology is very, very green.
“Alright, that’s cool and all. But I just wanna invest and see my savings grow.”
In that case, we’ve got news for you! Stay tuned for our next post on what it means for the average user to stake their ADA for passive income.
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