Proof of Work Vs Proof Of Stake

The two most notable consensus mechanisms are proof-of-work (PoW) and proof-of-stake (PoS). In proof-of-work, miners add new blocks to the blockchain by solving complex puzzles using their computer processing power, while in proof-of-stake, block creators are selected by an algorithm based on the percentage of their staked coins.

Take a look at our PoW vs. PoS guide to learn more about how these two consensuses differ and how they work.

We’ll also discuss their main advantages and disadvantages and list the most notable PoW and PoS coins. Here’s all you need to know about PoS and PoW consensus mechanisms.

What Is Proof-of-Work?

Proof-of-work is a consensus mechanism that was created in 1993. Its main goal was to prevent email spam. This mechanism was popularized by Bitcoin in 2009 since BTC was the first proof-of-work cryptocurrency.

Proof-of-work blockchains rely on miners whose task is to create new blocks and verify incoming transactions. The mining process requires a large share of processing power, so miners must use specialized rigs. Those who successfully create new blocks by solving complex mathematical tasks will receive a reward in the form of cryptocurrency they mine.

How Does Proof-of-Work Work?

PoW blockchains are supported by nodes or a network of decentralized computers. The main task of nodes is to accept transactions from other nodes and to validate them. The term “work” refers to the computational power of nodes represented by the SHA-256 hashing algorithm.

PoW block creators are called miners. To create a new block, miners have to solve complex mathematical equations using computational power. The first miner who succeeds in solving these equations will receive a reward in the form of the mined cryptocurrency. In other words, miners compete with each other for rewards.

However, the equations become more complex each time a new block is created within the chain. Moreover, a larger number of miners equals smaller rewards, which is why many miners use more than one rig.

The mining rewards are fixed at 3,125 BTCs per block + transactional fees. This type of reward system encourages miners to be honest since any attempt to cheat would cost them a lot of resources. The mining process also keeps the network safe.

Pros and Cons of Proof-of-Work

PoW consensus comes with both advantages and disadvantages. Regarding the former, proof-of-work keeps the network secure and decentralized as it allows miners to earn lucrative rewards. The higher the value of the cryptocurrency being mined, the more miners will join the network. A greater number of miners will increase the security of the network. 

Moreover, since a large amount of computational power is used for mining, there is less chance that the blockchain will get hacked. Namely, hackers would have to own 51% of computing power to add malicious blocks.

On the other hand, the mining process has a harmful impact on the environment since it consumes large amounts of energy. According to Cambridge Bitcoin Electricity Consumption Index research, the Bitcoin network consumes more energy than Argentina. Moreover, crypto mining rigs can be very expensive. An average ASIC mining rig can cost between $2,000 and $20,000.

Since this consensus implies competition, certain mining pools will be able to control the blockchain, thus calling into question its decentralized nature.

What Is Proof-of-Stake?

Proof-of-stake is a consensus mechanism designed to reduce network congestion. It also replaces computational power with staking to reduce energy consumption. For example, when Ethereum switched from PoW to PoS consensus, its energy consumption decreased by 99.84%.

The concept of proof-of-stake mining includes validators that are chosen randomly. Their task is to confirm transactions and validate new blocks. Anyone who locks their tokens into staking pools can become a validator. Validators receive a reward in the form of transactional and network fees.

How Does Proof-of-Stake Work?

Validators run nodes to validate blocks on PoS blockchains. They do this by staking their coins, i.e., using them as collateral. This makes them eligible to be randomly selected as validators. Once a sufficient number of validators confirm the validity of the new block, it will be added to the network, and the validators will receive a reward in the form of network fees. 

Validators who lock a larger number of coins for a more extended period will have a greater chance of getting chosen by the algorithm. However, if most validators find a new block invalid, the block will be rejected. This means that the validators who proposed the new block will lose a portion of their staked coins.

Pros and Cons of Proof-of-Stake

The main advantage of the PoS consensus is that it doesn’t require the use of specialized rigs. Namely, PoS blockchains run on standard servers. This consensus is also energy-efficient as it replaces computational power with staking. This makes it more eco-friendly than PoW.

Another advantage of PoS consensus is greater scalability. On that note, PoS blockchains don’t rely on rigs to achieve a consensus. This makes PoS networks more scalable since transactions are validated much faster. On top of that, hackers would need to own 51% of the cryptocurrencies on the network to add malicious blocks, which makes PoS blockchains highly secure.

However, PoS consensus also comes with certain disadvantages. As mentioned before, although validators are chosen randomly, those who stake more coins will have a higher chance of being selected. In other words, PoS consensus often requires significant initial investments. This also means that stakers with the most money will have more power over the network.

Difference Between Proof-of-Work and Proof-of-Stake

Here are the main PoW vs PoS differences:

Conclusion

As you can see, both PoW and PoS mechanisms come with certain advantages and disadvantages. On that note, the former is considered more secure, while the latter is more environmentally friendly. Moreover, PoW consensus is more established than PoS as it belongs to the first generation of consensus mechanisms.

However, PoS consensus has recently become more popular among the crypto community since it’s more accessible, faster, and cheaper than PoW consensus.

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