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How to earn on the DPoS consensus algorithm
The world keeps changing, and so do consensus algorithms. As we reach the end of 2018, a PoW algorithm seems as old-fashioned as using a button mobile phone.
Over the last few years, we have observed a general trend towards ASIC resistance algorithms used by currencies and coins, as well as a new type of vogue consensus - Proof-of-Stake.
As we all know, the world of crypto would be incomplete without mining. Mining is the essence of crypto. It is part of the Proof-of-Work (PoW) consensus algorithm, in which miners are looking for a hash of a new block in the blockchain network. The more hashrate you have (and the subsequent increase in computing power and electricity consumed), the higher the chance that you can find a new unit and get rewards from the network.
As a result of this race, miners keep using tonnes and tonnes of electricity, commensurate with the consumption of small countries.
At the same time, the main problem facing the blockchain community is set to be resolved very controversially. The process of creating new blocks remains in the hands of a third party and can be manipulated quite easily. As a result, there are numbers of cases of ‘51% Attack’, in which miner-attackers can unite the power of their mining devices in order to change the hashrate of existing transactions in the network. Such a change would make it possible to spend the coins twice, which is called double spending. The latest attack was the one with EMC2.
PoS (Proof-of-Stake) is an alternative mechanism for generating blocks and does not require such a tremendous amount of electricity. Instead, within the network, a set of Masternodes is selected. Using a certain algorithm, a Masternode is picked by the network to create a new block or to check the validity of blocks created by other Masternodes. Each Masternode has a particular stake at its disposal, similar to the hashrate in PoW. The larger the stake, the more often the Masternode is selected by the network to generate blocks.
Some varieties of PoS, such as DPoS and PoI, offer the possibility of network rewards for specific actions. DPoS (Delegated Proof-of-Stake) gives you the opportunity to distribute your balance to a selected Masternode, so a user can receive a regular reward from the Masternode as a passive income. An example of a network using DPoS is Tezos.
PoI (Proof-of-importance) is used in the NEM network. The essence of the PoI algorithm is that not only does it reward those with a large account balance, but it also takes into account how much they transact to others and with whom these transactions are made.
This means that those who are actively helping the economy, and therefore NEM, make a profit, so the deserving people are rewarded. Each user is given a trust score: the higher it is, the more chance they have of being rewarded.
The good thing is this will mean that wealth is distributed much more evenly; anyone who contributes can gain extra XEM (the currency of the NEM network). NEM is great because it gives the same opportunities to everyone. The main aim is to empower regular people.
Certain projects, such as Magnum, support the passive income of users, provided by the consensus of the network. Magnum is a light universal wallet which offers users several tools to increase their welfare.
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