Proof-of-work vs Proof-of-Stake: Which One is Better?

2023-01-16, 08:06

[//]:content-type-MARKDOWN-DONOT-DELETE
![](https://gimg2.gateimg.com/blog/165042832718348369crypto101_web.jpg)

**<font size=5>[TL; DR]</font>**
🔹 The most popular blockchain consensus mechanisms are the proof-of-work and proof-of-stake ones.

🔹 With the proof-of-work consensus mechanism the validators should solve complex mathematical problems to verify the transactions.

🔹 Proof-of-stake mechanism requires validators to stake a minimum amount of their native cryptocurrencies.

🔹 It is very difficult to tell which is better, the proof-of-stake or the proof-of-work consensus mechanism as they both have pros and cons.
<_iframe_ title="Blockchain 101 : Consensus Protocols | Gateway to Crypto" src="https://www.youtube.com/embed/yM-OjIKT7p8" allow="autoplay; encrypted-media" allowfullscreen="true" data-time="340" data-date="2022-08-30" data-desc="On this episode, we talk about Consensus Protocols, like Proof of Work and Proof of Stake." data-thumb="">
</_iframe_>
## Introduction
In the traditional financial sector banks and other financial institutions manually record all transactions. In most cases they use software programs to capture the data they need.

However, on the blockchain computerized systems verify and record all transactions. The two main systems for validating and recording the transactions that occur on the blockchain are proof-of-work and proof-of-stake consensus systems.

The [proof-of-work](https://www.gate.io/learn/articles/what-is-proof-of-work/63 "proof-of-work") consensus mechanism (PoW) uses computing power to solve complex cryptographic equations to verify all transactions. The process of solving complex mathematical problems in order to validate transactions is called crypto mining and results in the production of new coins or tokens.

The miners who successfully solve mathematical problems get rewards in the form of the native token or coin of the blockchain. For example, miners on the [Bitcoin](https://www.gate.io/trade/BTC_USDT) blockchain get their reward in the form of BTC.

On the contrary, the proof-of-stake (PoS) consensus mechanism uses validators, who hold large quantities of staked tokens, to verify all transactions. For example, the <a href="/uk/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain uses the proof of stake consensus mechanism which requires the validators to stake their ETH. Basically, crypto staking is a process of pledging or locking cryptocurrency to vouch for recording accurate information on the blockchain. In return, the validators earn a reward in the form of the blockchain’s native token or coin.
## Understanding the consensus mechanism
Successful blockchains rely on secure and reliable consensus mechanisms. Basically, a consensus mechanism is a means by which a single truth is established on a blockchain such as <a href="/uk/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> and [Bitcoin](https://www.gate.io/trade/BTC_USDT). The parties entrusted in verifying transactions agree that the data is correct and record it on the blockchain.
## What is proof of work consensus mechanism?
The [proof-of-work consensus](https://www.gate.io/bitwiki/detail/150/consensus-algorithm "proof-of-work consensus") mechanisms, adopted by [Bitcoin](https://www.gate.io/trade/BTC_USDT), secures billions of dollars worth of cryptocurrencies. As stated previously, this method involves solving complex mathematical problems as a means of verifying the transactions that take place on the blockchain.

The computers or nodes that solve the mathematical puzzles are called miners. Also the proof of work consensus mechanisms involve algorithms designed to validate transactions and add them to the blockchain.
![](https://gimg2.gateimg.com/image/article/1673855204111.png)<center><font size=1>Proof of work consensus mechanism- Raincom</font></center>

A miner that solves the problem adds a new block on the network and earns a reward for that. It is important to note that the miners are specialized machines with huge computing powers. Currently, the application-specific integrated circuits (ASICs) are the best miners in the sector. The point is that we cannot mine cryptocurrencies using our ordinary computer systems.

The process of solving the cryptographic puzzles uses much electricity, computing power and takes much time. This also involves other expenses related to the general infrastructure, cooling systems and manpower. Also, there is intense competition to solve mathematical problems.

Due to the difficulties and expenses involved in crypto mining, blockchains reward the miners with cryptocurrency worth thousands of dollars. For example, for adding a single block to the [Bitcoin](https://www.gate.io/trade/BTC_USDT) network the investor gets 6.25 BTC.
## Proof of work pros and cons
![](https://gimg2.gateimg.com/image/article/1673855515222.png)
## What is proof of stake (PoS)?
The proof of stake is the second most popular consensus mechanism. Basically, the PoS was created to overcome the major limitations of the proof-of-work mechanism. The key drawbacks of PoW are slow transaction speed and limited scalability.

For an investor to become a network validator, he/she should stake a required minimum amount of a cryptocurrency which acts as a vouch against dishonest behavior. If a validator approves an incorrect transaction the blockchain will burn his/her staked cryptocurrency.

The network randomly selects a validator for a transaction based on the amount of staked cryptocurrency. It also considers the period in which the tokens have been staked.

The investors who do not have the required minimum amount can join staking pools where they jointly participate in the transaction validation process. <a href="/uk/price/polkadot-dot" target="_blank" class="blog_inner_link">Polkadot</a>, <a href="/uk/price/cardano-ada" target="_blank" class="blog_inner_link">Cardano</a> and <a href="/uk/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> are examples of blockchains that [use the proof-of-stake consensus mechanism](https://www.gate.io/learn/articles/what-is-proof-of-stake/60 "use the proof-of-stake consensus mechanism").
## <a href="/uk/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> proof of stake
The <a href="/uk/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain is one of the networks which uses the proof of stake consensus mechanism. For someone to become a validator he/she should stake at least 32 ETH. The validator should also have three software programs that support the validation process. These are a validator, a consensus client and an execution client.

By the way, for a long time the <a href="/uk/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain used the proof-of-work consensus mechanism until it shifted to the proof of stake one in September 2022. The main reason for that upgrade was to reduce the blockchain’s energy consumption and to improve on scalability. It is worth noting that the function of consensus mechanisms is to approve accurate transactions that take place on the networks. However, they are different on how the validation processes work.
![](https://gimg2.gateimg.com/image/article/1673855593333.png)
## Difference between proof of work and proof of stake
![](https://gimg2.gateimg.com/image/article/1673855629444.png)
<center><font size=1>Proof of work vs proof of stake - Deltaexchange</font></center>

Now that we have discussed the proof of work consensus mechanism and proof of stake one, let’s compare the two.
![](https://gimg2.gateimg.com/image/article/1673855720555.png)
## Which is better: the proof of work consensus mechanism and the proof of stake one?
The truth is that the proof of work consensus mechanism and the proof of stake one have their pros and cons. As a result, it is difficult to conclude that one is better than the other. However, let’s briefly explore the three key areas that differentiate the two.

### Degree of centralization
By comparison, blockchains that use [proof-of-stake consensus mechanisms seem to be](https://ventures.gate.io/ru/learn/articles/what-is-pos-staking/10 "proof-of-stake consensus mechanisms seem to be") more decentralized than those that depend on proof-of-work ones. The proof of stake mechanism allows many users to participate in the blockchain as they can stake any amount of cryptocurrency they have.

The users who cannot afford the minimum amount of cryptocurrency required to become validators can join staking pools. The number of validators for blockchains that use the proof of work consensus mechanism is comparatively small because they have to purchase expensive mining equipment such as ASICs. Above this, they have to incur other expenses such as electricity cost.

### Network security
The possibility of a 51% attack on blockchains that use the proof of stake consensus mechanism is less than that of networks that rely on proof of work. This is because there is no economic benefit of carrying the attack since the blockchain can burn their tokens.

Also, as there are many investors with staked tokens it is unlikely that an individual or small group of investors can accumulate the required amount to carry out the attack.

In principle, with the proof of work consensus mechanism it is very difficult for a few miners to control more than 50% of the computing power of a blockchain. However, the attackers can attain more than 50% of computing power of blockchains that have small market capitalizations.

### Energy consumption
Mining cryptocurrency consumes much energy making it very expensive. Technically, the computing power required to solve the cryptographic puzzle consumes much electricity. As such, environmentalists have been campaigning against crypto mining.
![](https://gimg2.gateimg.com/image/article/1673855807666.png)<center><font size=1>Proof of work energy consumption- Thenextweb</font></center>

However, blockchains that use the proof of stake consensus mechanism do not consume much energy. The example [of the Ethereum blockchain](https://www.gate.io/bitwiki/detail/102/ethereum "of the Ethereum blockchain") can make this clear. When the <a href="/uk/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain shifted from the proof of work mechanism to the proof of stake one its consumption of electricity decreased by 99.9%.

The above comparison seems to indicate that the proof-of-stake consensus mechanism is better than the proof-of-work one. Nevertheless, more time is required to give such a conclusion with confidence since the proof of stake consensus mechanism has been tested only for a short period and on a smaller scale than the proof-of-work one.

### Conclusion
There are several blockchain consensus mechanisms at work. However, the proof-of-work and the proof-of stake mechanisms are the most popular ones. Notably, the proof-of-work mechanism uses crypto mining as a means to verify transactions while the proof-of-stake one relies on validators who stake a certain quantity of cryptocurrencies.
## FAQs about PoW and PoS differences
### Why is proof of work required for [Bitcoin](https://www.gate.io/trade/BTC_USDT)?
Proof of work is a consensus mechanism where validators solve complex mathematical problems as a means of verifying transactions and adding them on blockchain.  It is a proven and strong method of securing a blockchain network such as the [Bitcoin](https://www.gate.io/trade/BTC_USDT) network. It prevents any possible attacks from malicious actors such as hackers and prevents double-spending of BTC.

### How is proof of work different from proof of stake?
The main difference is that proof of work relies on solving cryptographic equations to validate transactions and add them to a blockchain. In each case, a node that has the highest computing power is able to approve the transaction. However, with proof of stake mechanism, the validators should lock a large amount of the native cryptocurrency in order to verify transactions on a blockchain. Also, the validator that holds the largest amount of locked tokens is most likely to approve the transaction and add it to the network.

### Why is PoS better than PoW?
First, the proof of work and proof of stake are similar in that they are consensus mechanisms used for verifying and adding transactions to blockchains. With PoW the network participants use much computing power, which consumes much energy, to verify transactions. Nevertheless, PoS requires the network participants to lock a certain amount of the native cryptocurrency on the network in order to verify and add the transactions to the blockchain. Therefore, PoS does not consume as much energy as PoW. Also, PoS is more scalable, faster and cheaper than PoW.

### Does [Bitcoin](https://www.gate.io/trade/BTC_USDT) use proof of work or proof of stake?
[Bitcoin](https://www.gate.io/trade/BTC_USDT) uses a proof of work consensus mechanism where network participants solve complex mathematical equations to approve transactions and add them to the network. This process of using computing power to solve the cryptographic equations and produce new coins is called mining.  In return, the blockchain rewards the first node that solves the equation with 6.25 BTC.

### What is the difference between proof of work and proof-of-authority?
The proof of authority consensus mechanism assigns the role of validators to a small number of network participants. However, with the proof of work mechanism the validators use their computing power to solve complex mathematical problems as a means to validate the transactions. Since the validators using the proof of work mechanism compete to solve the complex equation, the blockchain only rewards the one that verifies the transaction.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

Поділіться