How Proof of Stake Is Better for the Environment, Explained

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May. 19 2021, Published 10:30 a.m. ET

After Tesla CEO Elon Musk backtracked on his Bitcoin promise, the world is watching cryptocurrencies for more than their monetary value. Now, environmental impact is a deciding factor in a coin's long-term viability. Coins that use a PoS (proof-of-stake) mechanism are touted as more eco-friendly than their PoW (proof-of-work) counterparts.

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How do these mechanisms differ in reaching consensus, and do the outcomes make PoS coins like Binance (BNB) more sustainable

Proof-of-stake versus proof-of-work mechanisms, explained

PoW and PoS are two different ways for cryptocurrency miners to reach consensus.

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Consensus mechanisms allow blockchains to reach an agreement on a single piece of data (or the block that identifies the asset). This is necessary because cryptocurrency blockchains function across a decentralized web of servers.

PoW mechanisms (like Bitcoin and Ethereum) require all miners to compete simultaneously to solve highly complex math problems. Once they come to a consensus, miners are able to validate the block.

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Meanwhile, PoS systems use a form of collateral to keep the blockchain secure. The miners validating transactions have cryptocurrency assets as a reward for maintaining accurate records and not manipulating the market. 

How proof-of-stake consumes less energy than traditional mechanisms

PoW mechanisms will always require a ton of energy, even if the servers they operate through are powered by renewable energy. They're based on the amount of time it takes to validate transactions. This is tracked by financial energy usage, meaning that more renewable energy is required for the same validation.

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However, PoS mechanisms don't require miners to solve long, drawn-out mathematical puzzles. As a result, they use a lot less power to run.

This is why there's talk about Ethereum and Dogecoin switching to a PoS mechanism, as opposed to the outdated PoW method. Ethereum 2.0 will feature PoS, but it will take some time for the creators to get the system down. There's the issue of switching from a secure platform to something equally as secure, but different nonetheless. Dogecoin's future in PoS is speculative. 

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Profitable coins using proof-of-stake mechanisms

The most widely known PoS coin is BNB, the native coin of crypto exchange Binance. BNB is largely profitable aside from the downward crypto market swing on May 19. Aside from Binance, the coin can be traded on the FTX exchange.

Also, there's Raydium (RAY) trading on the FTX and MXC exchanges, and Tezos (XTZ) trading on Binance, CoinBase, and more. There are also altcoins using PoS like Cosmos (ATOM), Neo (NEO), and even Frog Finance V2 (FROGV2), the latter of which just so happens to help save frogs in the wild with some of the profits.

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At the end of the day, the planet doesn't just hope for humans to achieve sustainability but requires it. PoW creations have come far, but cryptocurrencies hoping to stay relevant will want to opt for PoS.

PoS isn't just an alternative system, but it's currently the most viable one for major blockchains to transition to. 

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