Cryptocurrency is built on blockchain networks, which are decentralized and need a verification system to work. But not all coins operate on the same system.
In order to verify transactions without a central system, cryptocurrency networks employ what is known as a “consensus mechanism.”
Proof-of-Work (PoW) and Proof-of-Stake (PoS) are the two primary consensus mechanisms in use today.
The blockchain has no central authority, so protecting digital assets from fraud and securing the blockchain is left to the developers. Both PoS and PoW systems reward miners financially through coins and prevent double spending.
What is Proof-of-Work (PoW)?
Proof-of-work (PoW) is the older of the two mechanisms. It’s called proof-of-work because transactions are validated by miners solving complicated math problems in exchange for cryptocurrency. In order for the network to validate many transactions quickly, it takes an enormous amount of processing power.
Cryptocurrencies like Ethereum (CCC:ETH-USD) and Bitcoin (CCC:BTC-USD) still run on proof-of-work. Proponents like PoW because the amount of processing power involved makes it almost impossible for others to break into its blockchain.
On the other hand, critics contend that PoW uses too much electricity. Currently, Bitcoin uses 130TWh annually. If Bitcoin were a country, it would use more electricity than all of Ukraine. Meanwhile, Ethereum uses as much electricity as the nation of Ecuador.
What is Proof-of-Stake (PoS)?
Because cryptocurrency has no central authority, proof-of-work relies on rewarding miners for the processing power they commit to the network. However, this isn’t an accurate reflection of how many coins the miners actually possess. Enter proof-of-stake, which rewards miners based on how many coins they actually have in their portfolio.
Proof-of-stake (PoS) reduces the necessary computing power for verification while also providing greater transaction speed. Because miners must have collateral to participate, instances for attacks are limited. Miners are now validators of new transactions and updaters of the blockchain. The PoS system is based on rewarding the most invested miners, not the ones who use the most electricity.
So which is better, the old PoW system where miners compete mathematically for coins, or the new PoS system where miners actually have a stake in the process? It all comes down to the goal for a given blockchain.
PoS uses less energy and has greater rewards for nodes, but it is also more centralized and less secure, meaning it is easier to attack. PoW is more decentralized and more secure, but at enormous environmental cost.
PoS also has more options for punishing bad miners. So although it is more decentralized, in some respects it is much safer. PoS also leaves a much smaller ecological footprint.
Here are 5 great PoS-based coins to watch in 2021:
- Private Verified Instant Transaction (CCC:PIVX-USD)
- Neblio (CCC:NEBL-USD)
- Qtum (CCC:QTUM-USD)
- Navcoin (CCC:NAV-USD)
- Stratis (CCC:STRAX-USD)
Cryptocurrency investors trying to invest in the future need PoS-based tokens in their portfolio, there’s no two ways about it. Interested investors should also consider these best altcoins to invest in for 2021, nearly all of which utilize PoS consensus.
Proof-of-Stake Cryptocurrencies to Buy: Private Verified Instant Transaction (PIVX-USD)
Estimated annual return: 4.8%
Private Verified Instant Transaction is a PoS crypto focused on making transactions both secure and private. Users are able to stake coins on the blockchain with respectable returns. One great feature about PIVX-USD is that there is no cap, which makes a low barrier perfect for newcomers to enter. Miners recoup 5% annual returns by running masternodes of 10,000 PIVX-USD units.
Trading from $0.17 in Match 2017 to $9.43 in January 2018, PIVX-USD has leveled off for the past few years. The altcoin is back on the move in 2021, going from $0.47 in January to $2.02 since April. Retracing to $0.70 in June, PIVX-USD appears due for another spike. If it reaches anywhere near its peak levels from 2018, this cryptocurrency will make a great investment for 2021.
Estimated annual return: 10%
Neblio is a next-generation blockchain utilizing a PoS consensus mechanism to secure its blockchain and DLT database. There are no minimum balances required.
Neblio was created in 2017 to drive blockchain technology forward and meet the need for clear solutions and innovative tools. It runs on open source and a token protocol (NTP1). NTP1 simplifies the application and development of applications for supply chain and records management, gaming, asset tracking and identity management.
NEBL started trading in late Dec. 2017 and quickly spiked to $44.47 in January 2018. After 2 retracements and recoveries, the altcoin leveled off until Jan. 2021. From its lows of $0.39 on Dec. 25, 2020, it rose slowly in value to $4.51 on April 12. After another retracement and recovery in May, NEBL-USD settled at $1.35 in June. Looking at the 2021 chart, NEBL-USD could be due for a correction and recovery to previous levels.
Estimated annual return: 8%
Qtum is an open-source blockchain altcoin. Because it’s decentralized, QTUM-USD is capable of running smart contracts on a multitude of machines, meaning Qtum can satisfy multiple contracts simultaneously.
Qtum operates on a decentralized PoS network. The secure and stable system makes it compatible with existing blockchain infrastructure. New technologies are easily added to the system by contract coding and deployment.
Trading data for QTUM-USD is very similar to NEBL-USD. Launched in 2017, QTUM-USD quickly spiked to over $85 in January 2018. After several retracements and recoveries, price-levels tapered off in the $1.60 to $4 range until May 2021, when Qtum peaked at over $23. Retracing back to the $7-range in June, if history is any indicator QTUM-USD could see higher levels again in 2021.
Estimated annual return: 5%
Navcoin, “The Unbreakable Code,” promotes itself as the first cryptocurrency with a dual blockchain, making it virtually impossible to break into. Dual, or double-entry blockchain, functions in a way where the buyer offers real assets and the seller offers native tokens in return.
Navcoin offers low-friction payments, full decentralization and fully autonomous funding, making cryptocurrency very easy for newcomers.
NAV-USD really took off in 2017 when it soared from $0.06 to $4.16 by January 2018. After 2 retracements and recoveries, Navcoin leveled off in the $0.10-range until Jan. 2021 when it began a steady incline to $0.71 in February, then $1.17 in March. Maintaining levels in the $0.30 to $0.40-range through May and June, a Phase-3 accumulation and recovery could send NAV-USD back to prior levels through 2021.
Stratis boasts of its ability to reduce the need for trust in crypto by increasing transparency and streamlining business processes. The Stratis token, STRAX-USD, transfers value in the Stratis marketplace.
When Stratis was first introduced, it used a modified blockchain based on the Bitcoin Proof-of-Work model. Through innovation and new technologies, Stratis has moved forward onto PoS. The new STRAX-USD blockchain provides an environment for rapid growth.
Like so many of its crypto peers, 2017 and 2018 were banner years for STRAX-USD. The altcoin saw prices move from below $0.10 to peaks of $9 in 2017 and $21 in 2018. After 2 major retracement and recovery periods in 2018, STRAX-USD leveled off in the $0.30-$0.60 range until 2021, where it peaked at over $3. A retracement in June could lead to a correction and possibility back to prior levels.
When it comes to PoW vs. PoS, it really depends on which camp you’re in. Many still like trading coins the old way via proof-of-work, like Bitcoin. Others prefer the newer, more user-invested method of proof-of-stake, like Navcoin and Qtum.
While PoW rewards miners with computational power, PoS puts more emphasis on miners who are already invested in the coins. PoS allows for much higher transactional speeds and uses just a fraction of the same energy needed to run the network.
On the date of publication, Philip Loyd did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
This article is for informational purposes only. Reporting in this article should not be construed as an offer or solicitation to buy or sell any security. The author of this article does not hold a position in the above securities, nor does he plan to in the future. The author was not compensated for this article with securities of any kind.