When will Ether switch to pos mining? What awaits Ethereum in the new PoS algorithm and when will it happen. Coins for POS mining

The articles are coming to an end, but there are still many topics that can be discussed. How about we look at the acronym Pos/Pow? Let's start!

Chances are you've come across this terminology before, but let's take a closer look at what it means. We already use a lot of acronyms when it comes to digital currency. The PoS (Proof-of-Stake) concept provides great opportunities for generating digital currency. PoW (Proof of Work) is a concept in which the security of a network is guaranteed by the total computing power of its participants. To make these issues somewhat easier to consider, let's start with PoW.

PoW is a protocol that is used in economics (or a function if you prefer that term). It requires computer time to process. It's easy to digest, isn't it? No? Well, I'm not saying it's complicated, let's try to simplify it. The concept of PoW was developed to combat DDoS attacks, which caused the system to freeze and refuse to process user requests. PoW also resists spam. The PoW concept does not require much processing power from your processor and effectively protects the entire network. This is not an ideal solution to the problem, but we need to start somewhere?

How do the concepts relate to digital currency generation? In the crypto world, PoW is used to protect your coins as it supports decentralized networks. A simple example: you have a digital wallet and this moment it is not synchronized. As soon as you connect to the network, it changes its status to synchronized as it starts accessing the blockchain. What do you think could be loaded in this case? The wallets of other people with small capacities are combined into a network, through which collaboration becomes possible.

The concept of PoW is a security measure and allows us to bypass the need for official regulation of our business operations. And that's exactly what many of us like. This is a non-exclusive feature that is only available to select users. Every new coin has been running the PoW protocol since the first Bitcoin was put into circulation. The issue is that most developers don't even know what it does, let alone that their coin also runs on a specific protocol.

On the other hand, there is the concept of PoS. Most people know more about it than PoW, as it allows you to earn money without doing almost anything. So what does PoS technology mean in the eyes of the average reader?

Initially, the PoS protocol was intended to be used as a security protocol that supports the operation of PoW. This protocol searches for vulnerable points in the system and optimizes them. One of the most famous such problems is the 51% attack. It can occur when one miner has computer power that is more than half of the total network resource of the entire system. In this case, the percentage of profit will be distributed unevenly and not every person will want more than half of his coins to go to another.

The PoS concept is not perfect; it is one of many security strategies. It also allows you to earn interest on the crypto currency you hold in your wallet. Let's say you become the holder of 0.5% of all generated coins mined by the community. Let your coins use the PoS function in their work. This means that you will receive 0.5% of all blocks generated just for holding digital money in your wallet. This can be compared to a bank account, where once a year you receive a certain percentage of the profit, which is transferred to a savings account. PoS works in a similar way - it is your reward for storing coins in your wallet.

Of course, there are certain disadvantages or side effects to PoS. The PoS function ultimately leads to a gradual inflation of all coins. In the future, their number will tend to infinity. Does this mean a price reduction? Not certainly in that way. Most coins do not reach their face value as the network is constantly evolving. Due to the complication of algorithms for generating digital blocks, there will be a gradual decrease in their production. But until this point, the PoS concept can be used. And its protective functions will remain after the network is completely stopped.

PoS also affects the transaction costs of your coins. Crypto coins that do not support the PoS function will work with changed commissions when conducting transactions. Transaction fees will depend on the number of tokens you send or receive. With PoS support, transaction fees will be made at a fixed rate, regardless of the number of coins involved in the transaction. This is the best option, isn't it?

If you are looking for arguments that support the feasibility of using the PoS concept, then you don’t have to look long. Bitcoin has used this protocol from the very beginning, but there are other coins that also use PoS in their operation. These are NovaCoin, PPCoin, and many others.

Alexey Russkikh

There is a lot of information on the Internet about what PoW and PoS are, how protection is built and who has a better chance of receiving a block reward. But there is almost no information on how these types of algorithms are related to PoS mining. Sit back comfortably, now we will tell you everything.

general characteristics

PoW and PoS are types of algorithms with which the blockchain determines how the problem of distributed consensus will be solved. Ultimately, this determines how the block reward will be distributed.

In PoW (from English proof of work - proof of work) - the likelihood of successfully solving a cryptographic puzzle, on which the creation of a new block depends, is greater for owners of more powerful computing equipment.

In PoS (from the English proof of stake, literally: “proof of share”), the creator of the next block is determined pseudo-randomly, and the probability that he will be chosen as the creator of the block depends on his wealth, or, in other words, the size of his wallet.

PoW is used in cryptocurrencies:

• on the SHA256 algorithm: Bitcoin, Mazacoin, Namecoin;
• on the Scrypt algorithm: Auroracoin, Coinye, Dogecoin, Litecoin;
• based on the CryptoNote algorithm: Bytecoin, Monero, DarkNote.

PoS is used in cryptocurrencies:

• on the SHA256 algorithm: Nxt (NXT);
• on the Scrypt algorithm: Gridcoin; BlackCoin.

Currencies with mixed types of algorithms (PoW and PoS):

• Peercoin;
• Emercoin;
• BitConnect.

In 2016, Vitalik Buterin’s Ethereum announced the transition from PoW to PoS. The final transition of ether to PoS should take place in 2018.

Features of PoW

PoW consensus (also called Nakomoto consensus) was the most innovative solution proposed in Satoshi’s article “Electronic Cash”. PoW solves many electronic money problems, such as Sybil attacks. In addition, PoW ensures fairness in the network: the success of a miner is proportional to the computing power of his equipment (hashrate). If a miner's hashrate is 1% of the entire network, then it is most likely that he will create 1% of the blocks and receive 1% of the reward. This is why Bitcoin appeared on the basis of PoW.

However, for all its coolness, PoW has its drawbacks. Some people consider them significant:

1. Lack of utility: Computations performed for proof of work serve no useful purpose (other than to provide security). Solving cryptographic problems occurs for the sake of solving them. At the same time, in order to make calculations, you need to spend resources, primarily electricity. It turns out that the resources spent on mining in PoW are wasted;
2. The problem of maintaining decentralization. About 80% of Bitcoin's hashrate is now located in China. Centralization, in theory, could help miners unite and conduct malicious activities. If such miners become the majority (the so-called 51% attack), they will be able to ignore blocks of other miners, distributing the reward only among themselves, or double-spend the same crypto coins.

Differences between PoS mining

In 2011, an alternative proof technology was proposed - proof of stake or proof of share. It differs from proof of work in that instead of performing computational operations, the block creator shows that he has a stake in the system (in the form of crypto in his wallet). Thus, the more digital currency a miner has, the higher his chance of being rewarded for new block.

PoS is, first of all, a method, an algorithm, a proof that ensures the protection of the system. At the same time, users saw in this method of solving distributed consensus something that was not initially a basic characteristic of the algorithm - an investment opportunity. Thus, POS mining is also another way to make money on cryptocurrency. main feature This method is that you don't need to invest anything (or almost nothing).

Unlike regular mining or cloud mining, you do not need computing power. Here you buy a cryptocurrency that mines you a new cryptocurrency just because you already have that cryptocurrency in your wallet. It seems like some kind of fantasy or even some kind of simple scam. But no. This condition is built into the PoS algorithm itself and is an integral part of it.

For the PoS blockchain to function, all that is needed is constantly running wallets on the miners’ computers. The longer you keep your coins, the more you earn.

Why is PoS considered secure from 51% attack?

• First, to gain control of the network, a miner must own a larger share of the network's cryptocurrency. Such an attack can be extremely expensive, because... it requires an investment of more than half of the total money supply of the entire cryptocurrency network.
• Secondly, by carrying out such an attack on the network, the attacker will become the biggest victim, since he will steal the reward from himself.

Stages and strategies of POS production

How to start mining PoS currency:

1. Select the PoS currency (below is a description of some currencies) that you will mine.
2. Create a crypto wallet.
3. Buy currency.
4. Wait until blocks appear in the feed (the process will take about 24 hours).
5. Install the software client on your computer.
6. Activate wallet.

There are several POS mining strategies.

The simplest is to purchase some kind of PoS currency (hybrid PoW-PoS currencies are also suitable, for example, PutinCoin), which is listed on at least one of the major exchanges. You start mining it, extracting new blocks and receiving a reward for them, your earnings will consist of two components:

• change in the price of a currency based on the results of trading on the exchange.
• reward for blocks in the form of cryptocurrency, which you can also sell on the exchange.

A slightly more complex strategy in terms of time investment is buying a new cryptocurrency that is not yet listed on the exchange. The goal is to acquire maximum amount currency at a minimum price to sell when it appears on the exchange. This method has a significant drawback - the currency may never begin to be traded anywhere. However, you risk almost nothing, so you can try your luck. Crypts of new generations appear on the network every now and then, giving hope with their technological effectiveness.

Some craftsmen mine PoS currency collected from faucets. This method also has a right to exist, however, the profitability of such mining is relatively low.

Cloud PoS mining

We should also talk about the cloud mining method using PIC technology.

The most striking service for cloud POS mining is offered by PosWallet. You can start mining immediately after registering and replenishing your balance. Moreover, the service allows you to receive crypto for free and use it for mining using the PoS protocol (section called Faucet). PosWallet pool gives you the opportunity to get money around the clock. You don't even have to be online. Money is withdrawn automatically. The pool takes a commission of 1%.

Unfortunately, as of September 25, 2017, the pool does not register new users. Let's hope this is temporary.

Cryptocurrencies and profitability of PoS mining

The profitability of mining PoS currencies in 2017 depends on the declared reward of the cryptocurrency itself. This information can usually be found on the coin's website. Below we will talk about the most popular coins for POS mining that are relevant today and what the profitability is.

For the first time, a cryptocurrency with a new mining concept was announced in September 2013. The new kind digital money was called NXT. Today, other cryptocurrencies are already heard, with their own chips and percentage of profitability. More details about each.

(http://www.leocoin.org):

• Claims an annual rate of 20% for maximum investments in crypto (more than 50,000 coins).
• Traded on at least 5 exchanges.
• Capitalization $24,373,792 (as of September 25, 2017).
• Russian language on the site.

(https://www.reddcoin.com):

• The stated yield is 5% per annum.
• Traded on 8 exchanges, incl. on such a large one as Bittrex.com.
• Capitalization $40,698,653 (as of September 25, 2017).

(http://clubcoin.co):

• The stated yield is 20% per annum.
• Traded on 2 exchanges, incl. at Bittrex.com.
• Capitalization $43,108,009 (as of September 25, 2017).

(http://novacoin.org):

• Fantastic stated return of 100% per annum.
• Traded on 8 exchanges.
• Capitalization $8,664,226 (as of September 25, 2017).

Which currencies cannot be mined using the PoS algorithm:

• Bitcoin (uses PoW algorithm);
• Ethereum (uses PoW algorithm).
• Litecoin (uses PoW algorithm);
• NEM (uses the POI - proof-of-importance algorithm);
• Decred (uses both algorithms, but mining is carried out exclusively by PoW).

The key feature of any cryptocurrency is the highest degree of system protection, allowing it to do without a central control unit, being open to users. The key security feature of such systems is the verification mechanism, which confirms that the verification was actually carried out. Basically, PoW mining is used for these purposes, which is a paid voluntary and resource-intensive activity that requires miners to invest money in equipment and constant costs for electricity.

But at the same time, the method of verifying transaction blocks through checking the completion of work is not the only way to safely distribute checks across multiple network participants. Several cryptocurrencies have already been implemented using an algorithm for verifying ownership of a portion of coins, known as PoS. There are also examples of implementation of the joint use of these two algorithms.

Ethereum is scheduled to switch from PoW to PoS in 2018. We will talk about this within the framework of this material.

Theory

Block Confirmation

Distributed applications, which are all cryptocurrencies, typically use distributed checks of the correctness of all network transactions. These checks occur at the block level, into which these transactions are combined according to a certain rule. The checks are carried out by volunteer miners who perform such work on a remunerated basis.

If we say all this in simpler terms, taking the Bitcoin system as an example, then when, say, 120 money transfers are made by different participants, the system will take a hundred transfers and form a block from them, which will begin to be checked by many miners (who want to receive a reward).

The main task of miners is to check the correctness of all block transfers so that no one spends more money than he has. At the same time, miners confirm that they have indeed completed the checks. They confirm in accordance with the PoW confirmation algorithm by solving a complex, resource-intensive riddle - guessing a hash of a certain complexity. This guarantees independent checks on the network, since no one selects verifiers, and the entire selection procedure is based on competition between miners. In such systems, those who have more computing power are more likely to solve the riddle and open the next block, receiving a reward for it.

But you can confirm that the check has been completed in another way. It is not at all necessary to force all miners to do checks at the same time. You can embed a block verification algorithm in a “blockchain application” (call it what you want - Bitcoin central program, Ethereum EVM, etc.) and send blocks for verification to network participants in accordance with some algorithm. For example, with a probability directly proportional to the amount of cryptocurrency in the participant’s wallet, while checking that the participant’s blockchain is up to date.

PoS Feature

PoS, or Proof-of-Stake (proof of share) is a block formation algorithm in which the probability that a block will be formed by one or another network participant is directly proportional to its share of ownership in the total emission of a given cryptocurrency.

The power of the equipment does not play any role with this approach. The only thing that matters is the volume of participation in a given currency. Those. if you own 5% of the total amount, then you will on average open 2% of new blocks.

At the same time, no one bothers to use PoS along with standard proof of work. This approach is used, for example, by EmerCoin or Nxt currencies.

A variation of PoS is an algorithm for proving the importance of a participant. Along with the volume of participation, the activity of the participant’s account (number of transactions) and the time the participant is available on the network are taken into account.

In this case, importance refers to the participant’s contribution and trust in him. So, if a participant has a lot of currency in his account, then the influence of the two remaining parameters on the probability of the participant opening the next block and receiving a reward is reduced. The reverse is also true.

Advantages and disadvantages of PoS

Of course, the PoS verification method has both its strengths and weaknesses compared to the classic PoW proof of work.

Advantages:

• According to the “51%” attack theory, you need to have more than half of all cryptocurrency in your account in order to be able to make an adjustment to the blockchain. But such an attacker’s possession of cryptocurrency will primarily affect his own well-being.
• The accumulation of cryptocurrency in the hands of earners should lead to sustainable deflation with a subsequent increase in confidence and demand.
• Does not require fiat costs for electricity or equipment. Unnecessary obstacles in the way of miners are removed.
• No competition of computing power, as in PoW mining. The competitive process and race to acquire more and more powerful and expensive equipment gives way to the simple accumulation of coins to participate in the opening of blocks. The hardware component is no longer important.
• There is no negative impact on the environment - the energy consumption of all Bitcoin miners is now approximately at the same level as the energy consumption of the population of a small country. With the transition to PoS, this negative factor becomes irrelevant.

Flaws:

• “Settling” of the cryptocurrency in the hands of those who have the opportunity to collect it, and as a result, the concentration of the network in the hands of a few, or the centralization of the network.
• Money will flow in, leaving participants with little savings behind. At the same time, as the exchange rate increases, it will become increasingly difficult to make money through PoS mining.
• The “nothing to lose” problem, which requires an additional solution from the creators of PoS (in practice, there are such solutions). The crux of the problem is that block generators do not pay for their work with a large waste of resources by voting for multiple branches of the blockchain and can try to double-spend funds for free.

As you can see, with the transition to PoS, we should expect an increase in the cryptocurrency rate due to the fact that the very method of earning money on PoS involves storing coins, which limits supply on the market and increases demand.

Ethereum Roadmap

As noted earlier, there are cryptocurrencies based on PoW, PoS, or a combined confirmation scheme. Ethereum will be the first to switch from using one method to another. This implies an intermediate stage using both systems, when initially only 1 out of 100 transactions will be verified using the PoS method. This ratio will gradually change and end with a complete transition to the new system.

The Ethereum ecosystem provides for a number of update stages, including the planned transition to PoS. Nothing is known exactly about the dates, but these changes should approximately be expected in 2018, after the update called “Casper”.

The entire remaining update roadmap is as follows:

1. Metropolis- many technical improvements to the system, which should take place in two stages.

1.1 Byzantium- this hard fork took place in mid-October and brought a number of system improvements in terms of speed and security. He also delayed the planned sharp increase in difficulty (difficulty bomb) for miners and reduced the reward (emission) for open block from 5 to 3 ETH.

1.2 Constantinople- the exact date is not known, but it is planned after a couple of months after Byzanttium. It involves transferring the logical structure of signature confirmations to the side of contracts, which themselves will now be able to pay for GAS.

2. Casper- the transition to PoS is the basis of this stage of updates. Expected in 2018 with a hybrid PoW+PoS system. At the initial stage, owners with a coin volume of at least 1000 ETH will be invited to participate in block validation. The rest will have the opportunity to join a pool to work together. At a later date, the minimum threshold for independent participation will be reduced to 32 ETH. A further slowdown in the issuance of cryptocurrency is expected, since the basis of rewards will be transaction fees.

3. Sharding- expected in 1 - 2 years following Casper. The main idea of ​​the update is to distribute transaction signatures between validators, who will sign only a certain part. As part of this update, it is planned to increase network throughput to transaction processing speeds similar to Visa.

4. Plasma and Raiden- further technical improvement aimed at moving from recording all transactions in the blockchain to a model of two-way confirmation of data transfer and a network of P2P payment channels and deposits. The system aims to minimize transaction fees while further increasing throughput.

What to expect for miners and investors

Ethereum mining using the usual method is still ongoing, although with the transition to PoS, miners will have to switch to other coins. Already, there is a decrease in rewards and an increase in the complexity of the network, making ETH mining not as profitable as before.

To earn Ethereum, you will have to start accumulating this coin and then reserving it in your accounts. But no one has yet announced the exact dates for the radical changes, and everyone calmly continues to work.

As for the Ethereum price, it will undoubtedly grow with the changes of each planned stage of the roadmap.

If the transition to Ethereum PoS is successful, then similar changes should be expected from other cryptocurrency systems. Which could even make the PoW method obsolete.

conclusions

Ethereum has planned some good changes in its near-term development and this cannot be ignored if you are working in the cryptocurrency direction. Close attention should be focused on updating the system under the name Casper, which is planned for next year. If everything goes according to plan, and if there are no serious glitches, we will be able to observe a predictable increase in the coin rate, on which it will be possible to make good money on the same trading.

In general, the changes and news planned by Ethereum look promising and, in part, revolutionary. What will happen as a result of all these improvements, only time will tell.

As the idea grows that blockchain technology will impact the business world, individual investors and investment institutions are increasingly optimistic about the market, which they believe could develop into an attractive new asset class.

However, until now there have not been many alternative digital assets that have a different value proposition from Bitcoin, the first publicly traded blockchain-based cryptocurrency.

Today, Bitcoin is attractive both to investors who are not afraid to take risks, and to those who believe that this electronic currency will one day become a reliable means of storing money and a competitive financial instrument in global trade. Although it is often talked about as a volatile asset, the Bitcoin market remains one of the most stable among other electronic currencies with a market capitalization of more than $10 billion at the time of this writing.

Many alternative electronic currencies, in turn, having a supply value similar to Bitcoin, were characterized by comparatively greater volatility.

Against this backdrop, Ether, the platform's native cryptocurrency, is one of the few contenders perceived as a viable alternative to Bitcoin. Despite the recent collapse in price, ether's capitalization remains significant, as a significant number of investors and crypto exchanges perceive it as an interesting asset.

Ether provides some benefits that are not available to users of other electronic currencies, but it also carries certain risks and some nuances. Interested investors can benefit by learning the basics of the ethereum platform, as well as the main factors that cause ether price fluctuations.

What is Ethereum?

Ethereum is a platform for creating decentralized applications. The idea of ​​Ethereum was developed by Vitalik Buterin and presented in. At that time, Buterin repeatedly told the public that he wanted to create an alternative system based on blockchain that would offer more advanced tools for developers around the world.

Investors should understand that the Ether market is very different from the Bitcoin market in this regard.

The Ethereum Foundation announced during the course of the project that the rules in the ethereum network will be changed soon, and starting somewhere in 2017, the network will switch from mining to the Proof of Stake scheme (the PoS algorithm currently under development is called Casper ). It should be taken into account that at the moment the vast majority of blockchain experts consider PoS to ensure the security of blockchain systems. However, the leaders of Ethereum promise to put them all to shame and perform a miracle - to create a correctly working PoS mechanism (which no one has succeeded in doing yet).

As of mid-June, the total number of transactions in ether stood at $3.3 million. According to the Etherscan resource, the total amount of ether in circulation has already reached 79 million units. Ether is traded at the ratio of 1 ETH = 0.02 BTC, or approximately $13.

How does the refusal of mining affect the price?

As noted above, one of the most important factors influencing the price of Bitcoin is the reward of miners with issued Bitcoins.

Miners influence the price by increasing the total volume of bitcoins and making decisions about their subsequent sale or savings. The current version of Ethereum, Homestead, uses a hybrid algorithm that partially implements the principle of proof of work (PoW), and rewards miners who work for the security of the network with ethereum.

Thus, miners create a new block every 15-17 seconds, receiving 5 ETH for this. Miners who use computing power to find a solution, but were unable to add their block to the blockchain (such a block becomes an aunt/uncle block), can receive 2-3 ETH, the so-called aunt/uncle reward.

With the transition of Ethereum to the Casper protocol with the proof-of-stake protection method, it is expected that the size of the uncle reward will change downward. The new protocol will make it impossible for nodes to validate transactions and, as a result, add blocks unless collateral is provided.

Specifically, if a validator produces something that Casper deems “unacceptable,” their deposit will be forfeited, along with the validator's right to continue to participate in the decision-making process. At the moment, there are no sanctions for carrying out such “inadmissible” transactions.

It is assumed that the introduction of these protective measures will make Casper a working PoS mechanism, but this may also entail a change in the price of Ether due to changed realities of network functioning.

Also, a very significant help in the formation of the Ethereum community was the influx of GPU miners into it who had previously worked with other cryptocurrencies. Since Ethereum is going to “fire” all these miners with the transition to PoS, will they support it in the future?

Security issue

Bitcoin, which has been around for 7 years and has several serious problems, is considered the most secure blockchain. Even commercial enterprises have expressed their interest in its strong ecosystem and super-powerful mining network.

Ethereum has faced criticism regarding possible security issues, although most note that the product is in an early stage of development and has only been around for a few years. So far, the Ethereum network has been less exposed than Bitcoin and therefore its security testing can be considered less comprehensive. Also, the Bitcoin community has overcome a lot of damage against many elements of the network, becoming stronger and more immune to them. How well will the Ethereum community take a hit?, remains a big question.

The different compositions of Ethereum and Bitcoin mining pools are also noteworthy. The Bitcoin mining community has sometimes been criticized for allowing a small group of members to play a key role. Ethereum also has this problem.

According to Blockchain.info, five companies control approximately 81% of Bitcoin's hashrate. As of mid-April, the same figure for ether is 85%, which is also distributed among five companies.

If we go deeper, it turns out that the largest Bitcoin miner (F2Pool) has 26% of the hashrate in the current 24-hour block, and the largest Ethereum miner (dwarfpool) already supplies 41.8% of the hashrate.

Developers continue to work on new versions of Ethereum, but critics predict that it will be less secure than Bitcoin. Wait and see!

Price fluctuations

Being a relatively “young” platform, Ethereum was subject to strong price fluctuations. Its volatility at the moment greatly exceeds the range of fluctuations between Bitcoin and fiat currencies. At the time of writing, the figures were as follows: in one day the price fluctuations were 31%; for one month – 16.7%, and the average for the entire period of existence was 53.7%.

While some may be confused by this data, traders will be able to see the potential in this.

Market participants can buy and sell Ether primarily with Bitcoin, although fiat currency trading pairs are gradually gaining liquidity. You can trade on many different exchange platforms that have emerged in recent years. The largest platforms at the moment are Poloniex, Kraken and Bitfinex.

Price fluctuations attract traders who speculate on potentially high prices in the future in hopes of making money. Others buy it as a Bitcoin hedge or to diversify their cryptocurrency portfolio.

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It is not at all necessary to buy expensive video cards or ASICs that can quickly perform hash calculations with minimal energy consumption. There is PoS mining - another option for mining coins, which does not require expensive hardware at all. To earn money, you only need to have in your wallet a cryptocurrency from a system that supports PoS (Proof-of-Stake or “Proof of Stake”). Earnings are similar to investing in a bank deposit - the more crypto coins are stored in the account, the higher the income from mining.

What is PoS mining

Initially, “post-mining” appeared as an anti-hacking network. The first cryptocurrency - bitcoin - supports PoW mining, or Proof-of-Work. The phrase translates as “proof of work.” Participants in the system receive bitcoins for the fact that their computers calculate hashes - passwords that are used to sign new blocks of transactions in the cryptocurrency registry (blockchain).

The higher the calculation speed (hashrate), the greater the reward and the greater the likelihood that the system will “entrust” the calculation of the next hash to the holder of large capacities. However, the so-called “51% vulnerability” was discovered quite soon in this algorithm. It consists in the fact that if one of the network participants is able to take possession of computing power exceeding half the hashrate of all miners, the system will entrust the calculations to him. The problem here is not only that other miners will lose their earnings. During the generation of the next key, the owner of 51% can use his funds twice. This undermines trust in the system.

The popularity of Bitcoin itself perfectly protects it from the “51% vulnerability.” There is too much power involved in mining for anyone to provide more power than all the participants combined. However, lesser-known PoW cryptocurrencies are quite vulnerable. Therefore, another algorithm was proposed, which was originally planned to be used to increase security.

In this case, the reward for the issue is accrued to the holders of coins in proportion to their share in the total quantity. If the owner of the wallet has 2% of the entire cryptocurrency of the system, then when new coins are issued he will receive 2% of them.
To mine PoS cryptocurrency, you just need to be a participant in the system and store coins without movement in your wallet. You don’t have to buy Bitcoin; cryptocurrencies on POS allow you to earn money with minimal investment.

The disadvantage of this method of earning money is that you cannot make transactions and the electronic wallet must be online all the time. If the first problem can be dealt with by allocating a separate wallet for PoS mining, then the second condition in the PoS algorithm causes serious problems for ordinary users. If there are interruptions in power supply or Internet access, the wallet will “go offline” and earnings will stop. To avoid this, cloud PoS mining is used, in which users can pool their funds and earn money using crypto wallets that are always online.

How to start PoS mining

To start earning cryptocurrency using the PoS algorithm, you need very little.

• Choose a cryptocurrency that supports PoS (this includes some systems using the SHA256 and SCRYPT algorithms).
• Create a wallet by registering on the system website.
• Buy electronic currency through a stock exchange or exchange site.
• Install the client program on a PC or remote server.
• Wait a day until the system has generated a sufficient number of blocks in the system.
• Activate wallet.

After activating the wallet, the coins contained in it will begin to generate profit in proportion to their total quantity. To do this, you need to hold them on your account for 30 days. These days are included in the calculation of remuneration.

In general, profit depends on several factors: the time the coins are in the account, their quantity, specific weight and volume of issue for the period.

It is worth noting that if you choose a cryptocurrency successfully, you will be able to earn money not only through mining, but also due to the increase in the value of coins on the exchange.

It’s better to have several wallets to diversify risks and reduce the chance of missing out on a cryptocurrency that will break into the “tops.”

Difference from PoW

Systems with PoW mining have significant disadvantages, which are absent PoS algorithm:

• Useless calculations. The enormous computing power involved in solving cryptographic problems works only for the sake of the “proof of work” itself. As a result, a large amount of resources (both energy and video cards with ASICs) are wasted;
• Gradual centralization. More than 80% of the hashrate comes from Chinese users. This theoretically encourages miners to unite to implement a 51% attack in order to capture the entire emission and make double payments.

PoS mining does not require constant calculation of hashes, which wastes electricity, and the system is protected from 51% attacks due to two factors:

• concentrating 51% of the currency in one hand would be too expensive;
• the holder of the majority of the currency will be the first to suffer in an attack.

The advantages of this way of earning money are as follows:

• there is no need to purchase expensive specific equipment;
• energy costs are minimal;
• transaction commission does not depend on the transfer amount.

Pos-mining allows you to optimize the use of resources and get maximum profit with a minimum of investment.

Coins for POS mining

The most popular coins at the moment are: LEOcoin, ReddCoin, ClubCoin and NovaCoin. If you don’t want to take risks by investing in developing projects, then you should try PoS mining of these cryptocurrencies.

• The creators of NovaCoin promise a return of 100% per annum. The system has a capitalization of more than $8.5 million and is traded on 8 exchanges.
• ClubCoin, with a yield of 20%, is traded on only 2 exchanges, but the famous Bittrex is one of them. The capitalization of the system is over 43 million dollars.
• ReddCoin with a low yield of 5% per annum is more interesting as an investment with growth prospects. With a capitalization of over $41 million, it continues to grow. It is traded on Bittrex and 7 other exchanges.
• LEOcoin provides a 20% return when owning more than 50 thousand coins. Coins are traded on 5 exchanges, and the capitalization of the system exceeds $24 million.

Cloud PoS

The problem with PoS mining is that the owner of the wallet must maintain a constant connection to the server, and the profitability depends on the amount held in the account. To increase profitability and solve the problem of holding a wallet online, cloud services have been created that unite those who want to earn cryptocurrency.

The mining server has registered cryptocurrency wallets with support for post-mining and a reliable Internet connection. Owners of coins transfer them to a cloud service account, where they are accumulated to ensure maximum profitability. The profit received is distributed among investors in proportion to the size of their deposits.

Service fees allow server owners to pay for equipment maintenance and make a profit from their activities.

Investors also do not lose money thanks to the advantages that the service provides:

• the profitability of investments increases due to the accumulation of a large number of crypto coins in one wallet;
• there is no risk of losing profits due to a shutdown of the Internet or power supply.

Cloud services for PoS mining minimize the barrier to entry, allowing even those who do not have a computer with stable access to the Internet to join cryptocurrency mining.

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