The Advantages of Using The Proof of Work Approach
A Cryptocurrency, a type of digital currency, is the digital data intended to operate as a medium of payment where only public coin ownership information is recorded in a public ledger, also called a database, maintained in a digital format. This public ledger system is typically maintained on a peer-to-peer basis with no centralization or organization responsible for the maintenance of such a database. There is no single body that controls the cryptosystem than those who use it. These could be private individuals, businesses, or institutions such as banks and financial institutions. There are various types of Cryptocurrencies.
The most commonly used Cryptocurrencies are Fiat currencies that are backed by real assets such as gold or silver. The most popular Fiat Cryptocurrencies is the US Dollar, the Euro, the Japanese Yen, and the Swiss Franc. More private investors and entities are choosing to invest in Cryptocurrencies due to the highly profitable but also risk free nature of investing in this manner. Some well-known private Cryptocurrency investors are George Soros and Warren Buffet.
Various methods exist to mint and disperse the cryptocoins. One popular way is through proof of work or Proof of Stake, which is a type of proof of concept implementation that involves a formula creating a distribution of ownership of the underlying assets in the future market price after a defined period of time. Through proof of work, an entity that contributes a specific amount of computing power would be rewarded with a specific value of coins after they contribute their computing power. The proof of work process would be controlled and programmed by a set of rules that determines the distribution of ownership and staking formula. The number of such algorithm that are agreed upon is called a network.
Another advantage of the proof of work approach is that it solves one of the major drawbacks associated with any other form of decentralized management and that is the ability for miners to control the supply of cryptographic power. With proof of work, miners are only rewarded if they successfully execute the given algorithm by following certain pre-set guidelines. As you may imagine, this can cause a substantial decline in the value of the Cryptocurrency if they are unable to convince other users to participate. This is the major reason why most businesses and organizations choose the Proof of Stake approach. By placing a stake of a predetermined amount on a given project, a user or company who may prove to be unsuccessful will not see any financial loss.
One final advantage of the Proof of Work approach is that it is extremely low cost and increases security exponentially. Unlike Proof of Address which requires the expenditure of trust funds to start using a public key infrastructure (PCP), proof of work can be implemented right from the host computer. Therefore, even if one’s computers are infected with malicious programs or have hardware issues that may interfere with validation, the process will go ahead anyway. Transactions will go smoothly and coins will be transferred directly from the host computer to the recipient’s account without the need for additional Trust Authority or even custodian consent. These are the reasons why many individuals and enterprises have converted to the use of cryptobonds to execute their everyday transactions.