A major way Proof of Stake reduces costs is by not requiring all those miners to churn through math problems, which is an energy-intensive process.

As a result transaction times can be longer and fees can be higher.Ī newer consensus mechanism called Proof of Stake has emerged - with the idea of increasing speed and efficiency while lowering fees. But for something more complex like Ethereum - which has a huge variety of applications including the whole world of DeFi running on top of the blockchain - Proof of Work can cause bottlenecks when there’s too much activity. The winner earns the right to add the latest “block” of verified transactions onto the blockchain - and receives some crypto in return.įor a relatively simple blockchain like Bitcoin’s (which functions a lot like a bank’s ledger, tracking incoming and outgoing transactions) Proof of Work is a scalable solution. Part of the process involves “miners” all over the world competing to be the first to solve a cryptographic puzzle. Via Proof of Work, the network throws a huge amount of processing power at solving problems like validating transactions between strangers on opposite sides of the planet and making sure nobody is trying to spend the same money twice. Many cryptocurrencies - including Bitcoin and Ethereum 1.0 - use a consensus mechanism called Proof of Work. So how do all the computers in a decentralized network arrive at the correct answer without having it fed to them by a central authority like a bank or a credit-card company? They use a “consensus mechanism.” To understand why, you need a little bit of background.Ĭryptocurrencies are typically decentralized, meaning there is no central authority running the show. Bitcoin, for instance, doesn’t allow staking. This is where it starts to get more technical. Why do only some cryptocurrencies have staking?

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