what is PoW/Dpos/PoS

 Proof of Work

With Proof of Work, your miner (the computer or group of machines under your control) does the following:

• takes  from the internet the order to process some transactions. In other  words, it takes from the miners geographically closest to it a set of  transactions it’s supposed to verify, in which it is written who’s  sending how much of a cryptocurrency to whom.
• the miner then builds a block  – a list of transactions that need to be validated. How many  transactions per block depends on the size of those transactions. Those  which send from many addresses to many addresses are much larger than  those sending money from one to maybe one or two addresses, as previously explained.
• the  miner combines all the data from this block (literally glues them  together), adds some more data into the mix, and then tries to guess the  final bit of data which will result in a valid hash when hashed.  For example, in Bitcoin, the hash has to be prepended by a certain  number of zeroes. The computer, thus, does the following: “Try summing  up all of this and the number 1. Incorrect? Okay, try summing up all of  this and number 2. Incorrect? Okay, try…”
• the computer’s processing power will dictate how many of such guesses per second it can do.
• after a successful guess, the computer gets a block reward which is currently 12.5 BTC in Bitcoin, or 6.18 XMR in a system like Monero, etc.

The profits of mining this way will vary by hardware, software, and currency 

 The advantages of PoW are:

• outside factor effect. With  the PoW mechanism, the production and circulation of money requires  external factors like power and hardware. It is not possible to get the  expense of power or production of hardware back. Why this is important  will be explained in the PoS section below.
• it’s simple to pool mine.  It’s easy to just grab another computer’s calculated hashes, combine  them into one big pool of hashes, and have many computers hashing  together, splitting the profits.
• it’s useful for areas with surplus electricity, like China with its hydroelectric dams.

The disadvantages of PoW are:

• PoW  isn’t possible on smaller and weaker devices like smartphones. Not only  do these devices lack the space to store hundreds of gigabytes of  blockchain data, but they’re also not computationally powerful enough to  mine effectively. The battery would be emptied very quickly, not really  accomplishing anything.
• PoW mining is slow. With  Bitcoin, it’s one block every 10 minutes, and the transactions that fit  inside that block will be processed. Anything else has to wait for the  next block. This causes long waiting periods or expensive transactions  (those that attach a higher transaction fee are processed faster).
• PoW  is already spending enormous amounts of electricity. Simply mining a  single block costs more electricity than some countries need in a whole  year. This will only get worse. The dependence of a cryptocurrency on  electricity is unsustainable in all but the most stable environments.  This dependency also means that a more expensive electricity bill or a  government-imposed limit to the types of spending electricity can be  used for can stop an entire cryptocurrency.

 

• PoW allows for the centralization of mining. China already has  80% of the world’s Bitcoin hashing power, and if their cartels join  forces, we’ve got an 80% attack, not a 51% attack.
• Because the block reward keeps decreasing, miners keep getting fewer and fewer tokens of a mined blockchain. At the same time, as more people are mining, the mining difficulty  increases, so it gets harder and harder to mine. This makes mining more  and more expensive compared to profits, and fewer people bother with  it, exiting the system. The currency self-sabotages. Less hashpower  among the miners also makes the 51% attack more likely.As an example, Bitcoin might still rise to some $25000 or $50000 through the next 5 years or so, but as transactions get moved off chain  onto solutions like the Lightning Network (designed to transact small  amounts on the side, without waiting for validation from the main chain,  thus moving fees off the main chain too), mining becomes even less  profitable. With block rewards approaching 0 and transaction fees all  but gone, this will further escalate the miners’ departure from the  network, opening it up to a 51% attack or total stagnation.

Proof of Stake (PoS)

 With Proof of Stake, no complex equations need to be guessed so  powerful computers are no longer necessary, and with them, there’s less  need for electricity.Examples of PoS coins: Ethereum (soon), BlackCoin, CoinMagi, Diamond, Mintcoin, OKCash, HyperStake, Quotient, etc.Let’s  take Ethereum as an example. Proof of Stake works by randomly selecting  a “validator” – an account with enough Ether to be considered a  stakeholder, someone who’s invested into the ecosystem. Initially, that  would be 1000 Ether. The more Ether a validator has, and the longer it  has been on the candidate’s account, the more chance that they’ll be  picked. This validator then stakes the Ether (locks it up for a period  of months) and guarantees to uphold the laws of the ecosystem – to  truthfully validate transactions. Once a new transaction arrives, it’s  added to the block, validated, and the block is sent to the other  validators for confirmation. For this work, the validator gets the  transaction fees of the transactions they processed.Because  there’s no more need to guess combinations and processing transactions  is easy and cheap, it’s easy to generate fake ones. But because  validators have to reconfirm the information (like students in a school  correcting each other’s exam), it’s almost impossible to think a bunch  of validators will all confirm a malicious one’s report. For this to  happen, the malicious group has to not only be randomly selected at the  same time (impossible), but also have 51% more Ether than the rest of  the randomly selected validators who could have anywhere from the  minimum to an astronomical amount of Ether.Furthermore, if a  validator is found to be malicious, they lose their stake and are kicked  off the network. Cheating becomes an incredibly expensive sport.  Someone with enough money invested into the Ethereum ecosystem to become  a validator has no reason to sabotage this ecosystem because their  holdings lose value (because of the scandal they caused if successful,  or because they lose their stake if the cheating attempt fails).The advantages of PoS are:

• speedy processing of transactions
• contrary to PoW, not harmful to the environment
• not vulnerable to a state attack: no need for enormous amounts of electricity
• can  be performed on smaller and weaker devices because there’s no need to  download the whole blockchain, and since there’s no need for much  computational power either, can be easily adopted by the mainstream

The downsides of PoS are:

• no  external factors. Given that the stake is a part of the system itself,  the whole game is internal. This means that someone with enough money to  invest exclusively into the destruction of this system can do so by  investing only money, as opposed to Bitcoin where they need to invest  money, time, expertise, hardware, electricity, and more – all external  factors.
• the rich get richer. Those who have had their  Ether the longest (the age of the Ether in an account is as much of a  factor as the amount is) also have the best chances of becoming  validators. This means their chances to earn more Ether on top of their  existing pile also increases. This is different from Bitcoin’s “rich get  richer” system because there the rich have to keep investing in  hardware and knowledge to remain competitive. It also hurts more to  sabotage the network.

Delegated Proof of Stake (dPoS)

 In this PoS type, 101 delegates are picked by the community by voting  with the cryptocurrency in question, e.g. 1 LISK 1 vote. Some  blockchains have a different number than 101, but that’s the default.Delegates  cannot modify transactions, only delay their inclusion into a block,  but this has safety nets built into the protocol so prolonged exclusion  of a transaction becomes expensive. This is also the only “technical”  power these delegate validators have, and should they abuse the power,  the community can instantly see it and vote them out.Delegates  get rewards for validating transactions, just like in PoS, so cheating  again makes no sense because they lose both their stake and their role  in the system. The rewards they do get they can spend on lobbying,  spreading the word about the currency, cash it out into earnings, etc.Some  DPoS systems work in such a way that they can define a burn rate: a  percentage of tokens to be destroyed upon getting a reward. For example,  a burn rate of 40% will destroy 40% of the tokens received by a delegate. Destroying tokens leads to deflation,  which leads to increased value of the remaining tokens – both those  tokens in the hands of the delegates, but also the tokens in people’s  wallets around the world. It’s like everyone who uses the currency gets  dividends, because their money becomes more valuable automatically. The  remaining 60% of tokens can, of course, still be used for anything the  delegate wants to use them for.Advantages of dPoS:

• a  more even distribution of block rewards. People will elect only those  delegates who give them the most rewards, so the causal users and not  just big holders will be rewarded.
• real-time voting  security. Any malicious action can be immediately detected by the voters  and the malicious delegate can be voted out of the system.
• same  as with PoS, it’s very environment friendly and easy to execute on  smaller and weaker devices. It’s harder to stop because it doesn’t  depend on external factors controller by the state, like electricity.

Disadvantages of dPoS:

• it’s  possible that the delegates get organized into cartels. This already  happened with the LISK blockchain which, even though it hasn’t been  released as a full product yet, has a cartelized dPoS in which 51 of the  101 delegates have joined and formed a “Lisk Elite Group” in which they  vote for each other and don’t distribute their gains to any casual user  who hasn’t voted for all of them. This is identical to the modern  political system.
• because fewer people are in charge of keeping the network alive, it’s easier to stop it or organize a 51% attack (see above point about cartels).

DPoS is used by currencies like Bitshares, Crypti, Lisk, RISE, ARK, etc.