Cryptocurrencies were only a dream before the launch of Bitcoin. Due to the launch of Bitcoin, this dream finally came into reality. Bitcoin is known as the very first cryptocurrency to ever launch in this world and after it, a huge number of crypto assets were launched almost every passing day. Visit Profit Edge for a complete guide to crypto trading if you’re interested in bitcoin trading.
Digital currencies were only a dream back then and people only wondered about what the world will be like when all these technologies will launch in this world. Cryptocurrencies are now divided into various categories and types according to their structure, design, functionalities, and properties.
As we all are well aware of the types of these digital currencies, below in this article is a detailed discussion about the opportunities and obstacles of types of cryptocurrencies.
Proof of Work (PoW)
Firstly, we will discuss the strengths and weaknesses of the Proof of Work (PoW) systems.
Strengths
The word process is all the work done in the entire procedure of Proof of Work (PoW). Then comes the part “Proof” which refers to the follow-up part of the verification and authentication process. This verification keeps the ledger fully valid and agreed upon by all the parties involved in it.
The Proof of Work is a complete system that is extremely safe and secure. To control the system or to hack, the intruder must control over half of the nodes which is impossible, hence this mechanism is fully secure.
Weaknesses
What makes it not worthy of all the attention and hype is its huge energy consumption. This system consumes high volumes of energy to function. As we all know that all nodes have to work on all the transactions made, in a simple way no matter how many nodes you add it will not affect the speed or output of the network.
The Proof of Work seems unfit when it comes to scaling properly and therefore it has not been inefficient for many people. According to some studies conducted, it has been observed that this system consumes as much energy as Las Vegas. This amount of energy consumption causes huge hurdles in the crypto industry.
Proof of Stake (PoS)
Now we will discuss some advantages and disadvantages of the Proof of Stake (PoS) mechanism.
Strengths
The most prominent and major strength of this system is its processing speed. All the participating nodes tend to divide into smaller groups and assist in working on each transaction.
Big platforms like Ethereum are one of the key pillars of the Proof of Work and are now all set to shift to Proof of Stake blockchain technology.
Weaknesses
Coming to the weaknesses, this PoS is comparatively less secure than Proof of Work. Also, they are on the verge of becoming less decentralized with time. The other issue that rises is the PoS system controlling the nodes. The more the holdings, the more transactions they can be involved with, and hence the results are quite interesting as they earn passively through it.
In PoS, they can develop a snowball effect which helps in strengthening the nodes with passing time.
Tokens
Below is the description of the strengths and weaknesses of Tokens.
Strengths
There is a never-ending list of uses for crypto tokens. These tokens can easily be utilized to represent units or assets and are ideal for single purposes. These tokens are usually developed on the already existing blockchains. These crypto tokens are now also being used in commodity markets for various purposes
Weaknesses
When it comes to using these tokens as a way of exchanging crypto assets, they work amazingly. The problem lies in extracting the prices from whatever network the token is from or native to. We all know that these digital tokens do not hold the ability to be exchanged directly for normal paper note currencies. All this makes it hard to note the exact worth of these tokens. Also, as these tokens are built on already existing blockchains they are entirely relying on the blockchains and whatever happens to the blockchains, happens to them too.
Conclusion
Cryptocurrencies have more categories and types. All of them have their pros and cons. When investing in these currencies, be ready for what is coming next as these crypto-assets are highly volatile and unpredictable.