Cryptocurrencies are digital assets that use cryptography to secure transactions and control the creation of new units. Cryptocurrency technology can be divided into three different classes: proof-of-work (PoW), proof-of-stake (PoS) and consensus algorithms.
Proof of Work (PoW): PoW is a distributed computing algorithm used by some cryptocurrencies such as Bitcoin, Ethereum and Litecoin which requires miners to perform complex computations in order to create new blocks on their respective blockchains. Miners who successfully solve these computations are rewarded with newly minted coins or transaction fees associated with any valid transactions included in the mined blocks. The main purpose of PoW is to prevent double spending, which occurs when someone attempts to send more than one copy of an existing cryptocurrency token simultaneously over a network without authorization from its owner(s).
Proof Of Stake(POS): In contrast with PoW, POS does not require high levels of computing power for mining activities but instead uses coin age as an indicator for trustworthiness within the blockchain ecosystem . This means that users holding larger amounts older coins have higher chances of being chosen as “forgers” or “validators” responsible for producing new blocks on the chain; thus allowing them earn rewards proportional to their stake size and age held within said currency’s system . One key advantage offered by POS networks compared against POW systems is its energy efficiency since it does not require large computational resources nor specialized hardware/software setups like ASICs – making it ideal choice among smaller scale projects looking at cheaper & greener solutions while maintaining adequate security standards required by most crypto protocols out there today..
Consensus Algorithms: Last but certainly not least we have consensus algorithms ,which consists mainly on decentralized approaches towards agreement seeking processes between nodes participating on particular networks ; ranging from BFT based methods such as PBFT , RAFT & PAXOS up till recently developed technologies inspired directly off traditional POW models yet adapted towards achieving better performance results taking into account scalability needs while also emphasizing fault tolerance aspects found commonly throughout blockchain architectures nowadays .. These types methods allow cryptoprotocols offer much faster throughput speeds due other purer forms validation techniques employed inside each individual node rather then requiring entire network constantly update itself upon every single piece information occurring anywhere inside system – ultimately leading lower latency rates been observed overall resulting increased demand usage applications utilizing this type infrastructure across multiple industries worldwide
