Senator Cynthia Lummis (R-WY) has given a specific date for when her long-awaited crypto regulator bill will be unveiled. The legislation will help to sort cryptocurrencies under appropriate regulatory labels and federal jurisdictions. According to a tweet from the senator on Friday, the final version of her bill will be released on Tuesday, June 7th. Lummis has spent months working on the bill alongside Senator Kirsten Gillibrand (D-NY), announcing it as early December 2021. The bill will reportedly provide sweeping…
It has become challenging for us to tell whether things are real or not in today’s world. It can be a primary bank transaction or a vote in an election; the only way to validate these actions is by keeping a record. Society today validates these records through centralized authorities; this can be either a bank, government authority or an individual with the power to confirm the information.
This puts a lot of power in these centralized authorities’ hands and leaves room for loopholes that can be exploited at the consumer’s expense. As a result, in 2009, Satoshi Nakamoto invented Bitcoin, which became the first form of money that removes a central authority’s need.
Bitcoin became the first of many forms of cryptocurrency to be introduced into the market. Satoshi’s invention found a way to build a digital decentralized cash system, a currency outside government regulations. A decentralized network works as a peer to peer network for file sharing; it is recognized through a payment network with accounts, balances, and transactions known as a blockchain.
What is a Blockchain
A blockchain acts as a distributed ledger that is entirely open to the public. The data stored depends on the type of blockchain, and this differs between the different types of cryptocurrency. Its security comes from its creative use of hashing and distribution. Second, there is the hash that identifies as a block and all of its contents. Similar to a fingerprint, it is useful for detecting changes in the block.
The data stored depends on the type of blockchain; for example, Bitcoin uses both the sender and a receiver and keeps a record of the amount of money in the network.
Several elements contribute to creating a blockchain; this includes peer-to-peer network relations and their ability to create a space for the network to communicate and share remotely.
The next would be cryptography, which allows for reliable communication in a secure environment. After cryptography, the consensus algorithm is the set of rules that decides on the criteria for adding a new block. Bitcoin, for example, uses the Proof of Work algorithm.
These algorithms are also known as blockchain protocols; they are different systems carried out to reach a consensus and verify transactions within a blockchain network. Some blockchain protocols require either physical mining equipment such as nodes, and others use coins purely alone while others incorporate both methods.
Proof of Work
The first would be Proof of Work, as mentioned above; this protocol uses physical mining rigs with many graphics cards to power up the many machines. The more powerful a rig, the higher the chances of winning the next block and receiving the coins as a reward. This is one of the more expensive protocols as there is a lot of initial cost in equipment and electricity.
Proof of Stake
Proof of Stake is another protocol that does not require the same physical rigs as the POW. This protocol allows coin holders to add to a network by staking their coins in their digital wallets, activating staking, and leaving the computer while the owner receives staking rewards. POS is seen as a deterministic way that depends on its wealth or stake and not blocks reward.
Delegated Proof of Stake
Delegated Proof of Stake is a different protocol that delegates nodes through votes to represent others and add new blocks to the chain. In this method, the participants have control over who can certify the ledger.
Proof of Weight
Proof of Weight is a protocol unlike POS determined by the relative number of coins in a wallet; Proof of Weight incorporates the number of coins and the number of files they hold in the network. This method gives a further incentive to keep coins as well as contribute meaningfully to the system. The miners must work out complex cryptographic mathematical puzzles to be rewarded with a determined amount of bitcoin.
Proof of Capacity
Proof of capacity is the last method among the several varieties of the blockchain protocol. POC requires a node to pay for space. The larger the space on the hard disk, the better the chances of mining the next block and earning rewards. At first, the algorithm generates many data sets on the hard drives known as plots; the more plots you have, the better the chances of finding the next block.
These protocols are only but a few of the many different types that are available to use. All protocols are created to achieve effective decentralization and are determined by the platform’s kind of application.
This indicates the need for an incentive that would motivate individuals to contribute to the networks and not just the wealthy few. Due to the high price of the coins buying all the coins in an unreliable economy, it is recommended to control a new blockchain in terms of hashing.
The one protocol that kept being used is proof of stake, especially from a technical view, as it is more challenging to operate and protect against attacks. POS makes it hard for hostile actors to attack the network. This method is mainly contributing nodes in the system and to gain rewards.
These are some of the leading blockchain protocols that should be understood for a basic grasp on the ideologies behind blockchains to elevate the concept of cryptocurrency.