The investment in proof of work is hardware. Every 10 minutes, miners compete to solve a puzzle. The winner will get a block reward if they append the next block to the chain. It's like trying to win a lottery. You have to guess until you get lucky. The more powerful the computer, the more you can guess.
Billions of guesses a second are thrown out by the server farms around the globe. The larger the mining operation, the larger their cost savings, and thus the greater their market share. This is against the idea of decentralization. Proof of work will re-centralize any system that uses it.
A few big companies took control of the network in the case of Bitcoin.
Since early on in Bitcoin's history, enthusiasts have searched for other consensus mechanisms that can preserve some degree of decentralization, and aren't as wasteful and destructive to the planet as proof of work.
One of the more popular alternatives is proof of stake, which was first proposed on an online forum. It was supposed to be the mechanism for securing ether from the beginning, according to the white paper. Buterin noted that it was so difficult to develop a system that some even consider it impossible.
Instead of investing in energy-intensive computer farms, you invest in native coins. To become a validator and win the block rewards, you lock up or stake your token in a smart contract. The smart contract holds the currency when you send it to it.
All Rights Reserved © 2024
