Proof of Work v Proof of Stake.

2022-04-28, 13:35

Proof of Work (PoW) and Proof of Stake (PoS) are the most prominent proof systems used in blockchain transactions.

For transactions to be deemed fit to be added to the blockchain, they must be verified.

There are two primary mechanisms by which they are verified: Proof of Work and Proof of Stake.

Proof of Work (PoW) is a mechanism whereby participants (nodes) battle against one another to be the first to decipher complicated mathematical puzzles using computational power for the chance to validate blockchain transactions and earn crypto on the interconnected network.

PoW is the older mechanism utilized by Bitcoin, Ethereum 1.0, etc.

Although PoW was initially proposed in 1993 by Cynthia Dwork and Moni Naor to fight against spam emails, Hal Finney modified it in 2004, utilizing the SHA-256 hashing algorithm. Then Satoshi Nakamoto popularized it in 2008 with Bitcoin.

Proof of Stake (PoS) is a system whereby participants (validators) stake crypto coins behind a block they want to be validated and earn crypto on the interconnected network. The crypto holders then choose them based on the number of tokens.

PoS is the newer mechanism used by Cardano, Ethereum 2.0, etc. It was developed in 2012 by two developers, Scott Nadal and Sunny King.

The idea of decentralization is that no central body controls any transaction on a blockchain network.

However, it must be verified for a transaction to be added to the blockchain, and this only occurs when all the nodes in that crypto network validate it.

There are two primary systems for validation. They are; Proof of Work (PoW) and Proof of Stake (PoS).

Both mechanisms are highly functional but are used by different cryptocurrencies for various reasons. This article aims to compare both, so let's begin with individual looks at each.

What is Proof of Work (PoW)?

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Proof of Work is a mechanism wherein users compete alone or in groups using computing power to solve complex mathematical equations to verify blockchain transactions.

Proof of Work necessitates participants to "work" to solve the equations, as the name implies.

PoW is utilized in crypto mining and verifying transactions. Once an equation is solved by a node (PC), they are granted permission to add new blocks to the chain network and rewarded with the corresponding crypto of the network they worked on.

The concept of cryptocurrency is rooted in cryptographic codes, and it is an advanced technology that requires the use of supercomputers.

PoW requires vast electricity, expensive machinery, and advanced computing knowledge. Thus, solving the complex equations is akin to mining precious metals from the earth's crust, and this is why the process of solving these equations is called "mining."

It takes 10 minutes for a new block to be mined. Therefore, some miners often collaborate to improve their chances of mining blocks. However, a node with a high computing power (hash rate) has a higher probability of solving the equation.

The considerable resources expended in PoW coupled with solving complex equations slows down transactions tremendously.

Some of the crypto coins that utilize PoW include Bitcoin, Monero, Ether 1.0, ZCash, Litecoin, etc.

What is Proof of Stake (PoS)?

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Proof of Stake is a mechanism whereby participants (validators) stake a particular amount of crypto behind a block they want to be added to the chain (validated).

Afterward, the winner is chosen randomly based on the number of cryptos each validator has staked and the period it has been staked.

The chosen validator then validates a block of transactions. Once other participants have verified its accuracy, it is added to the blockchain.
Every participating validator earns a crypto reward commensurate with their stake, with the chosen validator receiving a transaction fee.

Proof of Stake (PoS) was formed as an alternative to Proof of Work (PoW), the original mechanism utilized for validating blockchain transactions.

This is because PoS isn't as laborious as PoW. There is no need for expensive computing equipment, large amounts of electricity, and computational power, like the latter, requires.

It is also more scalable than PoW as transactions can be validated quicker since they don't require complex equations to be deciphered.
Some of the crypto coins that utilize PoS include Cardano, Ether 2.0, Tezos, Algorand, and other relatively new crypto coins.

Pros & Cons of PoW

Proof of Work was the first proof mechanism formulated for verifying crypto transactions.

These are some of its benefits:

Security: A large amount of electricity, the expensive computers, and the technical know-how expended in solving the complex equations mean very few hackers can attempt to defraud the blockchain, perhaps in a 51% attack, not to talk of succeeding.

Trust: PoW has a long track record of dependability as it has been conceptualized, improved, and executed to near perfection. After all, it was the premier method of validating crypto transactions and was adopted early on by Bitcoin.

Authenticity: PoW is a system for validating crypto transactions without needing a third party. This prevents any node from modifying any part of the transaction process.

However, PoW being the first proof mechanism doesn't mean it's the best. It has some drawbacks, and here they are:

Expensive computational cost: To compete to solve the complex equations, a miner must possess a supercomputer furnished with advanced hardware. The said computers expend a lot of energy and require constant electricity and effective heat management to avoid overheating the system.

Scalability limitations: The exorbitant cost of computing directly prevents PoW blockchains from scaling up, as few nodes can participate in the process.

Slow process: The technicality involved in solving complex equations makes verifying transactions lengthy and slow.

Pros & Cons of PoS

PoS was formulated as an alternative and a better version of PoW. For that reason, most new cryptocurrencies utilize it as their proof mechanism.

These are some of its advantages:

Increased efficiency: PoS doesn't require much computational cost as PoW, making it energy efficient. Also, more nodes can join the staking process as it doesn't involve having expensive hardware.

Security: PoS provides incentives to network validators in the form of a portion of the transaction fee. If they approve fraudulent transactions, then they lose it. This improves the security of the blockchain.

Scalability: PoS is fast and easily scalable as many nodes can participate in staking.

Nonetheless, PoS has some flaws in its system. Here they are:

Limited accessibility: Any potential validator must possess the crypto of that particular blockchain platform before they can stake it, limiting the possible participants in a PoS system.

Susceptibility to 51% attack: A 51% attack is a scenario where a person or group can control a blockchain after amassing more than 50% authentication rights. In PoS, a participant or group can obtain enough crypto to boost the probability of becoming a validator. If they are chosen, they can earn more coins, leading to them having more than a 50% stake in the network.

Conclusion

Every blockchain network utilizes either of the two most prominent proof mechanisms, PoW or PoS, for validating crypto transactions.

PoW was the first mechanism, and it is rooted in many technicalities that, although it makes the blockchain secure, also make it unscalable.

PoS is a more efficient, modern system but elitist, as it primarily caters to already wealthy participants.

Both mechanisms are functional and are favored by different cryptocurrencies, with the older ones gravitating towards PoW while the new coins use PoS. The exception is Ether, which moves from PoW to PoS with its upgraded blockchain version, Ethereum 2.0.

Author: Valentine. A, Gate.io Researcher
This article represents only the researcher's views and does not constitute any investment suggestions.
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.

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