Understanding Cryptocurrency Forks
February 12, 2025
The modern banking system is two tiered. This means that at the bottom there are commercial banks i.e. the banks that we interact with on a day to day basis. They are then managed by a central bank which forms the next level in the hierarchy. The modern banking system provides central banks with considerably […]
What are Capital Controls ? Capital controls are when the governments of nations restrict the inflow and outflow of capital into the economy. In a free market economy, there should be and would be no borders. However, this is not the case in reality. Countries want to ensure that their economies stay relatively stable in […]
The dividend discount model is also used to measure the value of preference equity in addition to forecasting the value of ordinary equity. There are certain assumptions and clarifications that need to be made regarding the use of dividend discount model for valuing preference equity. The purpose of this article is to provide this information […]
Pension funds typically cater to people investing for their retirement. When it comes to retirement planning, most people stay conservative. Hence, pension funds were not allowed to invest in risky and unstable assets. However, the past decade or so has led to the creation of a new risky asset class. For many years, cryptocurrencies have […]
In the previous articles, we have studied what a risk-based supervisory system for pension funds is. We have also studied the various steps which need to be taken in order to set up such a system. It is true that this system is being adopted on a large scale worldwide because of the various benefits […]
In the previous articles, we studied proof of work as well as proof of stake. We learned that the proof of stake mechanism was created in order to overcome the shortcomings of the proof of work mechanism. However, proof of stake itself has several shortcomings which have become increasingly visible over the years. In order to overcome those shortcomings, another mechanism called the proof of importance has also been created.
Proof of importance has been introduced by a cryptocurrency called NEM which is relatively obscure when compared to Bitcoin or Ethereum. However, since the mechanism has several advantages, it is becoming increasingly popular in the cryptocurrency market. In this article, we will have a closer look at the proof of importance concept and understand its advantages.
The proof of importance mechanism has been created in order to overcome the shortcomings of proof of stake. Hence, in order to understand proof of importance, we first need to understand the shortcomings of proof of stake. The three major shortcomings have been listed below:
The main purpose of the proof of importance mechanism is to overcome these two problems. The method which is used to overcome these problems has been listed below.
The proof of importance mechanism works in the following manner:
From the above-mentioned points, it is clear that the proof of importance mechanism does get rid of a lot of problems associated with the proof of stake mechanism. For instance, in this mechanism, the rich no longer get richer and the cryptocurrency actually behaves like a currency i.e. it keeps flowing amongst people instead of being hoarded and locked in digital wallets. Hence, it can be said that even though proof of importance is not a very popular concept today, it may soon be noticed by investors because of its merits and may end up becoming the predominant consensus mechanism in the future.
Your email address will not be published. Required fields are marked *