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Proof of Work vs Proof of Stake: what’s the difference?

By Connor Freitas

Not all blockchains are managed in the same way. Here’s a guide to Proof of Work versus Proof of Stake – and what makes them different.

Proof of Work vs Proof of Stake is a long-running argument in the crypto community. These rows can get heated – once, I saw someone throw a chair in anger. Here, we are going to calmly explain PoW vs PoS… and the pros and cons for each of them.

What is Proof of Work?

Before we delve into the comparisons, let’s look at how PoW works.

Proof of Work is most commonly associated with Bitcoin, but it’s also used in other cryptocurrencies. This is an algorithm that is designed to confirm transactions and get new blocks added to the blockchain. With Proof of Work, miners are competing to be the first to complete a complex mathematical puzzle that will generate this new block, meaning that they’ll be able to collect some new Bitcoins as a reward.

You may be wondering… what is the point of Proof of Work? Why get miners to solve these complex mathematical puzzles in the first place? Well, the idea behind this algorithm is to stop so-called denial of service attacks that slow the blockchain down. Because these puzzles take a considerable amount of computing effort, they help deter malicious actors who may have been tempted to launch a spam attack. Do bear in mind that there is a careful balance that needs to be struck with Proof of Work algorithms – if the puzzles are too difficult, few new blocks will be formed.

Ethereum – another major blockchain network – also uses Proof of Work at the moment, but in the coming years it will transition to Proof of Stake.

Let’s take a quick look at the advantages and disadvantages of Proof of Work. On one hand, those in favour of this algorithm point to how anyone can be a miner as long as they have the computing power to dedicate to it. However, there’s a problem with this argument. As time goes on, it’s getting increasingly harder to mine BTC and, compared with a few years ago, there’s a lot more competition for diminished rewards.

When it comes to Bitcoin, it is practically impossible to benefit from Proof of Work if you have a normal PC. These days, you need sophisticated equipment to realise any benefits – and from a power consumption perspective, they can cost an arm and a leg to run. Last year, research from the University of Cambridge suggested that BTC consumes more energy than the whole of Switzerland (although this was later contested). BTC’s annual usage would also power every kettle in the UK for a whopping 11 years (now this is a comparison British readers will find more appealing). There are concerns that the energy needed to power the Bitcoin network will only continue to rise – mainly because of the impact on the environment.

Other issues with Proof of Work include how many of the complex mathematical puzzles being solved by miners ultimately have little value. The answers to these equations don’t end up being used for scientific research.

What is Proof of Stake?

Now we’ve kicked the tyres of Proof of Work, it’s time to see how Proof of Stake stacks up in comparison. Here is how PoS works: with Proof of Stake, your ability to mine for new coins or validate transactions is not tied to your ability to solve those complex puzzles we were talking about earlier. Instead, it is directly linked to how many coins you hold.

Let’s imagine that Richard has 5 per cent of the coins available on a blockchain. Through Proof of Stake, this would mean he is entitled to mine up to 5 per cent of new transactions. Although Proof of Stake does consume considerably less power (meaning British kettles and cups of tea are not placed under threat), this can create financial hurdles for newer miners.

From a security perspective, there isn’t much incentive for launching an attack when there is a Proof of Stake algorithm. Firstly, doing so would be extremely expensive – and second, the drop in value that malicious activity causes would leave the attacker even more out of pocket.

Proof of Work vs Proof of Stake

So – we’ve provided a simple explanation of Proof of Work and Proof of Stake. But who would win in a battle of Proof of Work vs Proof of Stake?

That depends on who you ask. Some say a direct comparison between PoW vs PoS is difficult to achieve because Proof of Stake hasn’t been used anywhere near as widely as Proof of Work has. It’s a much newer type of consensus algorithm – and, as a result of this, we haven’t really seen how Proof of Stake would fare under a major blockchain. Mind you, with Ethereum 2.0 set to be fully rolled out in the next couple of years, we’ll get a better idea of how this mechanism works.

There are some radical ideas out there about how blockchains will work in the future. Some say that we shouldn’t be in a world of Proof of Work vs Proof of Stake – and instead, we should rely on hybrid models where both consensus algorithms are used. That way, it’s possible to reap the advantages of both and mitigate their downsides.

Some blockchains are instead forging a path where they use completely different consensus algorithms altogether. Just some of them include Proof of Burn, Proof of Capacity, Proof of Weight and Proof of Activity. The list seems to be practically endless – and, as innovation continues in this (still young) industry, it’s highly likely that we’ll see more approaches to securing blockchains pop up in the not-too-distant future.

FURTHER READING: What is Ether? Your simple guide to the cryptocurrency

FURTHER READING: Ether and Ethereum: what is the difference?

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