The content of this article is not investment advice.
As we continue to explore the many avenues that can lead to the widespread adoption of blockchain tech, one financial instrument has been making waves in both traditional finance and the emerging Web3 space—Exchange-Traded Funds (ETFs).
With vastly increased attention over the past few months, it’s clear that ETFs will play a significant role in driving mainstream acceptance of blockchain and Web3 technologies. But what exactly are ETFs, and why are they so crucial to the mass adoption of Web3? Let’s dive in.
What Are ETFs? Breaking It Down
An Exchange-Traded Fund (ETF) is a type of investment fund and exchange-traded product that holds assets such as stocks, commodities or bonds. ETFs are traded on stock exchanges like individual stocks. This means they can be bought and sold throughout the trading day at market price, which fluctuates with the value of the underlying assets within the particular ETF.
The Appeal of ETFs
In the more traditional world of finances, ETFs have gained popularity because they offer investors exposure to a wide array of assets without requiring them to buy each asset individually. For instance, an investor can buy shares of an ETF that tracks the performance of the S&P 500, thereby gaining exposure to the top 500 companies in the U.S. stock market with a single purchase. This convenience, combined with generally lower fees compared to mutual funds, makes ETFs an attractive option for both novice and seasoned investors.
ETFs and the Web3 Ecosystem: A Perfect Match?
Bridging Traditional Finance and Blockchain
The connection between ETFs and crypto is becoming increasingly significant. As blockchain-based assets continue to steadily gain traction, the introduction of ETFs that track some of these assets allows traditional investors to gain exposure to the blockchain space without directly buying or managing cryptocurrencies.
In the same way that the traditional financial system can appear mysterious and daunting to many early adopters of web3, it can be difficult for traditional investors to dive directly into the web3 pool. ETFs present a shallow end with easier entry, allowing those investors to first get their feet wet without becoming overwhelmed by the less regulated deep end.
Essentially, ETFs are particularly appealing to those who are curious about blockchain but wary of its volatility and technical complexity.
Accessibility: ETFs provide a familiar and regulated investment vehicle for traditional investors to explore the world of blockchain. This ease of access is crucial for onboarding new users to the Web3 space, where unfamiliarity has consistently proven itself a significant barrier.
Institutional Interest: The approval and adoption of blockchain-based ETFs by regulatory bodies signal a growing institutional acceptance of blockchain. As large financial institutions enter the space through ETFs, legitimacy is lended to the entire Web3 ecosystem, encouraging a community of increasingly more conservative investors to participate.
Market Stability: By providing a diversified and regulated way to invest in blockchain technology, ETFs can help stabilize the market. This can reduce the extreme volatility often associated with cryptocurrencies, making the Web3 space more attractive to the general public. As more traditional money flows into these markets, they generally will become more difficult for whales to manipulate.
The Road Ahead: ETFs as Catalysts for Mass Adoption
Looking back several years from now, ther’s a good chance that 2024 will be remembered as the “year of the ETF” in the same way that 2018 was all about ICOs and 2021 centered around NFTs.
ETFs represent a bridge between the traditional financial system and the emerging world of Web3, and bridges are incredibly important when it comes to mass adoption. By offering a regulated, accessible and relatively low-risk entry point into blockchain, ETFs are likely to play a pivotal role in bringing blockchain technology into the mainstream.
As we continue to develop the GalaChain ecosystem, we recognize the importance of such instruments in shaping the future of Web3. By keeping an eye on these trends, we position ourselves—and our community—at the forefront of the blockchain revolution.
The first Bitcoin ETFs were approved by the US Securities and Exchange Commission (SEC) in the first weeks of 2024, with a total of 11 BTC ETFs approved, opening the floodgates.
In mid July, Ethereum-containing ETFs were finally approved for market trading. “We’ve now fully entered the ETF era of crypto. Investors can now access more than 70% of the liquid crypto asset market through low-cost ETPs,” said Matt Hougan, Chief Investment Officer at Bitwise.
There is a constant flow of news in the financial sector about crypto-related ETFs. Such extensive intersection of crypto and traditional finance is unprecedented.
At Gala, we’re not looking to make any predictions or speculations about token prices, and we’re not offering financial advice of any kind. We support the empowerment that comes with adoption of blockchain technology, regardless of how that empowerment interacts with markets. When we see the mainstream financial world (and its most trusted regulators) paying more attention to cryptocurrency, we recognize that global awareness of web3 is on the rise.
We encourage our readers to stay informed and try to keep up with the latest developments at the intersection of centralized and decentralized finance. Knowledge is empowerment, especially in the web3 world.
The intersection of ETFs and blockchain is a powerful indicator of how traditional finance and emerging technologies are beginning to converge. As we look to the future, ETFs could very well be the key that unlocks widespread adoption of Web3 technologies. At Gala, we are excited to be part of this journey and are committed to leading the charge in integrating these financial innovations into our ecosystem.
In the simplest terms, a hash is like a digital fingerprint for data.
Imagine you have a piece of information—a document, a photo or even a piece of text. When you run this information through a hash function (a specific type of algorithm), it generates a unique string of characters called a hash. No matter the size of the original data, the resulting hash is always of a fixed length. This is a key feature of hash functions: They condense data into a fixed-size output.
Think of it like shredding a document and then encoding the resulting pile of shredded paper into a fixed-sized box. No matter how long or short the original document was, the box is always the same size, and it’s nearly impossible to reconstruct the original document from the box alone. Similarly, it’s computationally infeasible to revert a hash back into its original data.
Hashes are foundational to many blockchain technologies, including cryptocurrencies like Bitcoin and Ethereum. They are integral to how blockchain ensures the integrity and security of data. Here are some key reasons why hashes are so important in Web3:
Data Integrity: Hashes ensure that the data hasn’t been altered. When data is hashed, even the slightest change in the input (like changing a single letter in a text) will produce a completely different hash. This makes it easy to detect tampering or corruption.
The decentralized internet as we know it is possible through the use of hash functions, as demonstrated by the Interplanetary File System and its distributed hash table. IPFS uses hash functions to verify the integrity of all data shared to what has become known as the decentralized internet. In fact, Gala Founder’s Nodes power a large portion of this data, giving the Gala ecosystem a large share in the responsibility of web3’s future.
Blockchain Security: In blockchain, hashes are used to link blocks of data together. Each block contains the hash of the previous block, forming a chain. If someone tries to alter the data in a block, the hash of that block changes, which then changes the hash of the subsequent block, and so on. This makes it extremely difficult to alter any information in the blockchain without detection.
Efficient Data Storage: Hashes allow large amounts of data to be represented by a small, fixed-size string. This makes storing and verifying data in blockchain systems much more efficient.
Proof of Work: In cryptocurrencies like Bitcoin, hash functions are used in the mining process. Miners compete to find a hash that meets certain criteria (e.g., it must start with a certain number of zeros), which requires computational power. This process, known as “proof of work,” secures the network and adds new blocks to the blockchain.
How Hashes Work
To dive a bit deeper, let’s explore how a hash function works. A common hash function used in blockchain is SHA-256 (Secure Hash Algorithm 256-bit). When you input data into SHA-256, it generates a 256-bit (or 64-character) hash. No matter what data you input—a single letter or an entire book—the output is always 64 characters long.
For example:
The text “Hello, World!” might hash to something like a591a6d40bf420404a011733cfb7b190d62c65bf0bcda32b575a0f76c6e53a2e.
If you change it to “Hello, world!” (note the lowercase ‘w’), the hash could be 64ec88ca00b268e5ba1a35678a1b5316d212f4f366b247724e663cd0da0927d5.
This dramatic change in the hash output despite a minor change in input is known as the “avalanche effect,” a property that makes hash functions extremely secure, reliable and suitable for blockchain technology.
Hashes are used in various Web3 applications beyond just cryptocurrencies:
Smart Contracts: Smart contracts often use hashes to verify the integrity of data or ensure that certain conditions have been met.
Digital Signatures: When sending transactions on a blockchain, digital signatures use hash functions to securely sign and verify the authenticity of messages.
Non-Fungible Tokens (NFTs): NFTs often include metadata that is hashed to ensure the data related to the token (like the digital artwork it represents) remains unchanged.
In the world of Web3, hashes are like the glue that holds everything together. They ensure data integrity, provide security, and allow for efficient data handling. Whether you’re dealing with cryptocurrencies, smart contracts, or NFTs, understanding hashes is crucial to grasping how the blockchain works.
Hopefully this quick explainer article has helped you advance your understanding of the tech behind the web3 world. Until next time!
Stablecoins have emerged as an important part of the web3 world, playing a crucial role in providing financial stability to a typically volatile cryptocurrency market. For those new to blockchain and crypto, stablecoins might seem like a complex concept, but they’re actually quite simple. Think of them as a “digital version of the dollar” or…
Learn about nodes, the essential building blocks of decentralized networks, and discover the unique role of Gala Founder’s Nodes in the Gala ecosystem.
Discover the benefits of Proof of Stake, a greener, more efficient blockchain consensus mechanism that ensures security and decentralization in the web3 ecosystem.
Discover the world of cryptocurrency mining and how it powers the blockchain ecosystem. Learn about the different mining methods and how GalaChain rewards Founder’s Nodes with $GALA tokens.
Learn about Proof-of-Work, a key consensus mechanism in blockchain technology that ensures security and decentralization by requiring miners to solve complex puzzles to validate transactions.
Imagine that you were a scammer trying to target a particular group of people… let’s say people who like to spend their days at the lake relaxing with a fishing pole hanging in the water. Who knows why – maybe you are trying to sell counterfeit lures? Coordinate putting out some AI-enabled fishing rod that’s collecting fingerprint data while they laze their days away? Motivations are rather inconsequential for this example.
You could pay for a big list of dark web data, but you could also just insert yourself into that community. You can hop on message boards, join chat groups, heck you could even go hang around local bait shops. Before long, you’ve got a lot of useful demographic data on people that are part of that group. Maybe all you have is some emails and IP addresses… but that’s enough to start refining your list and getting more information.
The same is true with Discord. The Gala community is a great place for the latest news and robust conversation about every aspect of the Gala Ecosystem. The popularity and richness of social connections that are forged on our Discord server or Telegram channel, however, also make them a popular destination for another type – scammers. It’s important to know and understand the tactics of these digital miscreants to keep your digital assets safe while still participating in any digital community.
Welcome to the 8th installment of The Guardian Papers, where we try to impart the wisdom that everyone should have to start a successful journey through the world of digital ownership. The blockchain world is still in its infancy. We here at Gala believe that empowering each and any member of our community makes us stronger as a whole.
Miss an issue of the Guardian Papers!? Check out past editions below!
It is our hope that this series has and will continue to present foundational information that will not only provide a base understanding of how to keep your blockchain footprint secure, but will also help inform your journey through this digital adventure so you can ask better questions, do better research, and make better decisions to help guard your entire community.
The Dark Side of Community
Discord was originally made for gamers. As the scope of the platform has grown to include countless massively popular communities, however, it has also attracted the riffraff that stalks digital space for the opportunity to steal from the unwitting. Because Discord servers categorize people into common interests, it’s easy for scammers to get inside groups and represent themselves as just another member – or even an authority figure – within that community.
The same is true for Telegram or other messaging apps where people commonly gather in like-minded groups. In these spaces, the community itself has already done the work to compile victims for all the villains in the cryptoshadows. Communities are welcoming because that’s the point of community. By simply being in these groups, however, you’ve done part of the scammers research for them… they know that you are part of their target audience.
Make sure you customize your privacy settings in Telegram… or else you’re about to get a whole hornet’s nest of attention from all the wrong people!
Community messaging apps like Telegram and Discord are third-party platforms that are utilized by Gala, but these can have their own security issues that are simply beyond any community’s ability to control. The scammers thoroughly know the shortcomings of these apps, and can exploit them to attempt to scam thousands of members of a community within minutes. Even one success will show them this pond is well-stocked with easy catches for their future fishing endeavors.
Any community where the digital villains see opportunity isn’t going to get rid of them without a fight, however. We can only turn the tide against the scammers by making sure that each and every one of us is ready to defend against them.
Don’t forget to customize your exceptions as well! By default, any member of Telegram’s premium subscription can contact you regardless of your settings 😱
Don’t forget to customize your exceptions as well! By default, any member of Telegram’s premium subscription can contact you regardless of your settings! 😱
How Scammers Prey on Communities
It’s hard to build and feel community if you’re always suspicious of your neighbors. The scammers are counting on this, because that’s not how defenses work. When you perceive yourself as ‘among friends’ your defenses naturally go down. You want to be helpful – after all, that’s what building community is all about.
That’s why they’re here. Community is a group trust that we build up over time with likeminded people. We can’t simply turn it off and on. It’s not like we recognize every member of the community, we just recognize that they are part of the community.
We’ve discussed impersonation before, so you’re all very well aware that there are people out there who will pretend to be Gala customers or community support. You need to stay vigilant for these types of things… these apps are where the scammers find their marks.
This isn’t to say that community itself is bad. In fact, it’s very very good. Community standards and best practices are how we combat these scammers. Building a community is too important to let scammers stop us. We have to build a better community to make it outlast the villains.
Trust is Earned
Just because someone is part of your community does not mean they’ve earned trust, and it’s not an insult to tell them so. Caution is admirable… and part of the point of web3 is to establish systems that don’t rely on trust.
First off, please adjust your privacy settings on Telegram, WhatsApp, Discord or similar apps if you have not. In Telegram, for instance, you can be contacted by anyone by default. If you don’t change that it’s only a matter of time before you are getting blown up with spam and scams. Similarly WhatsApp will show your personal phone number to anyone who comes looking if you don’t change the security settings… make sure to get this done or you’re wide open to an attack from a crytpovillain.
Even on Discord you can customize your security settings to control who can reach out to you. As we’ve discussed before, don’t trust a display name… that can be easily changed. Put people you trust on your friends list. Consider changing your settings so friends can message you. That way any new friend requests are where you know you need to be vigilant, and anyone on your friends list has already been vetted.
Trust, but verify
-Old Russian proverb
Don’t trust these security measures to be the end all be all of your defenses, however! People can get hacked or lose access to their accounts. Sometimes the attack could come from someone you know… albeit not them actually sitting in front of their keyboard.
Community Strong
With so many threats among communities you trust, the fight against bad actors in digital spaces can seem hopeless. Fortunately, community is also the cure to this malady.
⬆️ Not a great way to seek help from the community. Not only does anyone watching now know this user’s needs, but also their urgency. I bet their DMs blew up.
⬅️This is a great way to utilize the knowledge of the community. Tons of eyes can get on the deceptive scam attempt right away to verify if it’s legitimate or not. HINT: This one was not legitimate.
No one person can be entirely vigilant all the time. We get tired. We get distracted. Our guard comes down for a moment here and there… and that’s when attacks happen. Talk to your community. Educate each other and call out the tactics that scammers are using so that everyone can learn to avoid them. Alone an attack is inevitable. Together we’re strong.
If you see something sus, reach out! Ask the community you trust whether you should be engaging. Don’t be embarrassed. A simple question could save you a lot of hassle.
Guarding Each Other
When we work together, the community really shows its strength. Those who seek to exploit communities of common interests in the web3 space are counting on us not following through with our commitment to a solid community. If a victim doesn’t use the community resources at their disposal to help themselves, what can a community do to help?
That’s why it’s so important to share tips and educate fellow community members about security culture. If we all get a little better at spotting bad actors, we’ll all be a little less likely to get scammed. If we all get a little better and share a little more of that culture with each other, we’ll be exponentially more protected from those who seek to do us harm.
That’ll do it for this week’s Guardian Papers, but we’ll be back! Next time, we’ll be breaking down multi-factor identification and how it can help protect your digital sovereignty in this new age.
Stay safe Galaxians… and always have your shield ready!
Recent studies show that over 90% of users are using mobile phones to access the internet. As phones have been streamlined for on-the-go media playback and mobile apps have been created to increase the convenience and accessibility of nearly every type of resource, “phone as computer” is a concept that is overtaking more traditional computation methods.
We still refer to these devices as smart “phones,” but it won’t be long before these devices have entirely left the limiting realm of anything that can be classified as a phone. In fact, the concept of telephone will soon be a relic of the past, with modern communication devices barely resembling the original apparatus patented by Alexander Graham Bell in 1876.
Several years ago, the earliest web3 pioneers liked to speculate about what mass adoption would look like. For fans of cryptocurrency, NFTs and decentralized ecosystems like Gala, mass adoption was one of the hottest phrases around, a constant topic of discussion.
Most of those early adopters considered that worldwide acceptance of web3 tech would involve some kind of overthrow of the web2 era, replacing the social-focused platforms the world had come to know with less centralized and more sustainable alternatives that allowed users greater control over their data. I wonder how many of them could have predicted that the rise of The Open Network (TON) would be so closely connected to one of the most widely used social messaging platforms in the world.
There’s no denying that The Open Network (TON) has taken huge strides toward mass adoption of web3 on multiple levels. Gala users have already seen multiple examples of it in the recent release of our first wave of mini app “tapper” games, Treasure Tapper and Music Miner, both playable now with a Telegram account. Rewards in these casual Telegram games will eventually amount to $TREZ, the tapper token of Gala Games, which will be issued on both TON and GalaChain and bridgeable from one to the other.
The combination of Telegram’s powerhouse widely used social messaging platform, TON’s speed and scalability as a blockchain, and Telegram’s mini app infrastructure makes it possible for an entirely new generation of highly accessible web3 tools to hit the scene. It would seem that Telegram finally cracked the code of comfortably onboarding web2 users to web3 technology, and every effective web3 community stands to benefit.
The Universal Basic Smartphone
The upcoming web3 smartphone (UBS) that has everyone talking was created by Oyster Labs (not directly affiliated with the TON Foundation). It can currently be preordered for $130 through their website, with estimated delivery in September of this year.
WEN PHONE, WEN PHONE!
We're one step closer to the final shipment! Building a Web3 phone isn't an easy task, and we are incredibly grateful to have the support of such a dedicated community like ours. Your enthusiasm and encouragement have been instrumental in getting us to this… https://t.co/42vmiTfREE
— Oyster Labs: Universal Basic Smartphone (@oysterecosystem) August 1, 2024
According to the front page of Oyster Labs’ UBS site, “Universal Basic Smartphone(UBS) is creating an equitable digital economy where everyone is fairly compensated for their data. In the era of AI, while we have little control over what happens to the data we produce, companies profit from it for free. UBS gives you the power to control and benefit from your data to build a future where everyone gets a share. UBS believes in a digital economy that gives back to those who participate.”
In addition to its Android 10 OS and other standard smartphone features that make it comparable to many phones on the market today, this unique “powered by blockchain” smartphone aims to bring a new level of web3 interaction to a massive new group of mobile users worldwide.
With the highly scalable TON blockchain’s ability to handle large volume transactions per second (TPS) and the potential for notable partnerships, this groundbreaking phone could become a cornerstone of the mass adoption we’ve all been waiting for.
Built-In Web3 with TON
Preordering a UBS involves connecting a non-custodial TON blockchain wallet, establishing the intrinsic web3 connection at the core of this device. Owners will have seamless access to hundreds of mobile dApps from the TON ecosystem in addition to the full range of mainstream Android apps.
Rewards from the Start
IN classic web3 fashion, Oyster Labs is offering a plethora of enticing reward opportunities even before the first UBS are delivered to pre-orderers.
$OYS Tokens – Oyster Labs is offering free $OYS* tokens as a benefit to pre-ordering the UBS. In the initial “Founding” series, 1000 $OYS was given for each pre-order. The presale is currently in its 2nd series, “Friend With Benefits” (FWB), gaining 300 $OYS for pre-order. Additional $OYS can also be picked up by referring others to pre-purchase the phone. *$OYS is currently tracked as a reward point system, not yet listed on any markets or minted on TON.
OysterEarn – Owners of the UBS will enjoy cashback benefits from both web2 and web3 companies
Genesis Pass – Preorder of the UBS comes with a special Genesis Pass and the opportunity to “claim daily data dividends and more.”
Learn More about UBS
This article is merely reporting and speculating on publicly available information, and does not indicate any sort of partnership or endorsement of The Open Network, Oyster Labs, Telegram or any other entity mentioned in this article.
We encourage our readers to do their own research in all aspects of web3.
In the context of web3 and blockchain technology, nodes are essentially points within a network where data is processed, stored and communicated. Think of a node as a server that contains a copy of the blockchain and participates in the process of validating and relaying transactions.
Each node in the network ensures that the blockchain remains accurate and secure by cross-checking data and maintaining a shared ledger.
Nowadays you’ll see more and more of the term DePIN (Decentralized Physical Infrastructure Network, which accurately labels the way that nodes contribute physical computing power to a decentralized network in web3.
Nodes are crucial to the functioning of decentralized networks. Unlike traditional centralized systems where a single entity controls data and operations, decentralized networks distribute these tasks across multiple nodes. This distribution enhances security, reduces the risk of data tampering, and increases the network’s robustness against failures.
In simple terms, if you imagine a network as a city, nodes are like independent businesses that all agree on the same rules and work together to keep the city’s economy running smoothly. Without the effectiveness of these companies, the city would not be able to operate smoothly and provide necessary services to its inhabitants. Additionally, the viability of the entire city does not have to rely on the viability of any one business, because all the others agree on the same rules and continue to hold up the city’s infrastructure.
Each business keeps its own records, but they all share and validate information to ensure everything is accurate and consistent. This is how blockchain nodes work together, even as their operators are most likely strangers to one another, spread throughout the world.
Centralized networks are limited by things like land, real estate, energy and human resources. The larger a company gets, the more resources it must consume in an organized manner to maintain effectiveness. Decentralized systems are more scalable because they create the opportunity for remote node operators to shoulder much of this burden.
Gala Founder’s Nodes: A Specialized Role
Gala Founder’s Nodes are a specialized type of node within the Gala ecosystem. While they do not validate blockchain transactions—a task managed by the Hyperledger Fabric protocol on which GalaChain is built—they play several critical roles in supporting the network’s infrastructure.
Functions of Gala Founder’s Nodes
Decentralized Storage and Computing Power: Founder’s Nodes provide much of the necessary storage and computing power for the Gala ecosystem. This ensures that various applications, especially in gaming and entertainment, run efficiently without relying on centralized servers.
IPFS Distributed Hash Table Routing: Founder’s Nodes are instrumental in the InterPlanetary File System (IPFS), a protocol designed for decentralized file storage. They account for a large portion of the IPFS routing footprint, making decentralized internet performance significantly more robust throughout the world.
A Huge Piece of The Decentralized Web is Powered by Gala’s Node Network
Gala Founder’s Nodes account for nearly 30% of IPFS servers and Gala is leading the charge in decentralizing the internet.https://t.co/kg4CMUVr9O
Supporting Future Workloads: The scope of responsibilities for Founder’s Nodes is expected to grow. They will soon handle additional tasks such as bridge transactions and chain security, further enhancing the network’s efficiency and capabilities.
Token Distribution and Governance
Founder’s Nodes are also integral to the Gala token ($GALA) distribution process. New $GALA enters circulation by emission to Gala Founder’s Node operators as a reward for powering the network. The total amount of distribution is determined by the difference between the token’s current total supply (in circulation) and its max total supply, allowing dynamic variation of distribution based on how much $GALA is being used and burned throughout the world.
In simpler terms, Gala Founder’s Node operators are essentially licensing their computers as employees of GalaChain, putting them to work in the background and receiving $GALA regularly in exchange for that work. This method of decentralization reduces Gala’s costs for hosting and storing content through centralized providers such as Amazon Web Services.
Moreover, operators of Founder’s Nodes participate in governance decisions through consensus voting. This democratic process allows node operators to influence significant ecosystem decisions, including the distribution of tokens and other critical changes.
Why Gala Founder’s Nodes Matter
Gala Founder’s Nodes are the backbone of the Gala ecosystem, providing decentralized infrastructure support without involving themselves in transaction validation. This specialization allows them to focus on enhancing the network’s overall functionality and security, making GalaChain a more efficient and resilient blockchain solution.
Nodes are fundamental to the web3 world, enabling the decentralized systems that underpin blockchain technology. They ensure data integrity, enhance security, and support the network’s resilience. Gala Founder’s Nodes, in particular, exemplify how specialized nodes can provide critical infrastructure support, contributing to a robust and scalable decentralized network.
Proof of Stake (PoS) is a consensus mechanism used in blockchain networks to validate transactions and create new blocks.
Unlike the Proof of Work (PoW) system, which relies on computational power to solve complex mathematical problems, PoS selects validators based on the number of tokens they hold and are willing to “stake” as collateral.
Simplifying Proof of Stake
Imagine a school raffle where students can buy tickets to win a prize. The more tickets a student buys, the higher their chances of winning. However, if a student is caught trying to cheat by using fake tickets, they lose all their tickets and are banned from future raffles. This is similar to how PoS works: the more coins you stake, the higher your chance of being selected to validate transactions, but you risk losing your stake if you act dishonestly.
One of the primary advantages of PoS over PoW is its energy efficiency. PoS does not require miners to use vast amounts of electricity to solve puzzles, making it a greener alternative. This will be explored below in greater detail.
Security and Decentralization
By requiring validators to put up their own funds, PoS aligns the interests of validators with the network’s security. This typically ensures that validators have a level of financial commitment to the blockchain proportional to the weight of their validating actions.
Validators are incentivized to act honestly because they risk losing their staked coins if they attempt to cheat the system. This mechanism helps maintain decentralization, as it lowers the barrier to entry compared to PoW systems, which often require expensive mining hardware.
Scalability
PoS systems can handle more transactions per second (TPS) compared to PoW systems. This increased scalability is crucial for the broader adoption of blockchain technology, as it allows networks to support a growing number of users and applications without compromising performance. Proof of Stake is the main reason that newer blockchains than Bitcoin have been able to implement a transactional approach for a wider variety of activities. When more transactions are possible, the blockchain can be used as more than a simple ledger that keeps track of token transfers.
In PoS, validators are chosen to create new blocks based on the number of coins they have staked. To become a validator, one must lock up a certain amount of cryptocurrency in the network. This locked-up amount is known as the “stake,” and the action of locking these tokens is generally referred to as “staking.”
Validator Selection
In a typical Proof of Stake system, validators are selected randomly, but the likelihood of being chosen is proportional to the amount of stake they hold. This process is often compared to a lottery, where each coin staked acts like a lottery ticket—the more tickets you have, the higher your chances of winning.
Once chosen, a validator checks the transactions within a block to ensure they are legitimate. Once the validator correctly validates the block they receive a reward, usually in the form of additional cryptocurrency. If they validate a fraudulent transaction, they lose a portion of their staked coins, a process known as “slashing.”
Consensus
Other validators in the network then verify the block. If most agree that the block is valid, it is added to the blockchain. This collective verification process ensures the integrity and security of the blockchain.
Advantages of Proof of Stake
Reduced Centralization
PoS reduces the risk of centralization found in PoW systems, where mining power can become concentrated in the hands of a few entities with the most powerful hardware. In PoS, even those with smaller amounts of cryptocurrency can participate in the validation process, promoting a more distributed network.
Lower Barriers to Entry
Becoming a validator in a PoS system typically requires less initial investment compared to the hardware and energy costs associated with PoW mining. This accessibility encourages more participants, enhancing the network’s decentralization.
Economic Incentives
Validators earn rewards in the form of transaction fees and newly minted coins. This economic incentive aligns validators’ interests with the health and security of the network, as they have a financial stake in its success.
The Energy Efficiency of Proof of Stake
Why Proof of Work is Energy-Intensive
Proof of Work (PoW) requires miners to solve complex mathematical puzzles to validate transactions and create new blocks. This process, known as mining, involves a significant amount of computational power. As miners compete to solve these puzzles, they use large amounts of electricity to power their specialized hardware, leading to substantial energy consumption. This is particularly true for major cryptocurrencies like Bitcoin, where the difficulty of these puzzles increases over time, demanding even more computational resources and energy.
Proof of Stake (PoS) eliminates the need for energy-intensive mining. Instead of solving complex puzzles, validators are selected based on the number of coins they hold and are willing to stake. This selection process requires minimal computational power. Here’s why PoS is more energy-efficient:
No Complex Calculations: PoS does not rely on solving complex puzzles, which are the primary driver of high energy consumption in PoW systems.
Reduced Hardware Requirements: PoS validators do not need powerful, energy-hungry hardware to participate in the network. Standard computers can serve as validators, significantly lowering energy usage.
Fixed Energy Use: The energy consumption in a PoS system is relatively constant and low, regardless of the number of validators, as it primarily involves basic computational tasks rather than intensive calculations.
Scalability: PoS systems can scale more efficiently than PoW systems. As the network grows, adding more validators does not proportionally increase energy consumption.
On GalaChain
GalaChain is built on Hyperledger Fabric, using a hybrid consensus model which includes Proof of Stake.
To learn more about how GalaChain is built or to explore the possibility of developing a project of your own on this speedy, scalable and secure L1 blockchain, check out GalaChain’s SDK or apply as a Creator at the Gala Creators Portal.
Real-World Impact
The transition from PoW to PoS can lead to a dramatic reduction in the energy footprint of blockchain networks. For example, Ethereum’s shift to PoS with its Ethereum 2.0 upgrade is expected to reduce the network’s energy consumption by over 99%. This makes PoS a more sustainable and environmentally friendly option, aligning with global efforts to reduce carbon emissions and promote green technologies.
Proof of Stake represents a significant evolution in blockchain technology, offering solutions to many of the challenges faced by Proof of Work. Its energy efficiency, scalability, and economic incentives make it a compelling choice for new blockchain projects. As the web3 ecosystem continues to grow, PoS will likely play a crucial role in ensuring secure, efficient, and decentralized networks.
