Proof of Work vs Proof of Stake: Which Is Better?

Known as Ethereum 2.0, the proof of stake mechanism will allow the Ethereum blockchain to handle increased traffic that has come with a wave of new users in recent years without having to rely on a Layer 2 solution. Proof-of-stake has many advantages over proof-of-work, including more network nodes, better governance norms, and less centralization. Participants must stake a certain sum of the network’s cryptocurrencies in a signed agreement in order to contribute to the PoS bitcoin protocol block addition process.

Различие между Proof of Work и Proof of Stake

While PoW and PoS share the same goal of reaching consensus in the blockchain, PoS has a different way of determining who validates a block of transactions. Rather than relying on powerful computers to compete for block validation rights, PoS validators rely on their crypto holdings. In proof-of-work, verifying cryptocurrency transactions is done through mining. In either case, the cryptocurrencies are designed to be decentralized and distributed, which means that transactions are visible to and verified by computers worldwide. The alternative Proof-of-Stake (PoS) mechanism was introduced to address these challenges.

What is proof of work (PoW) and proof of stake (PoS)?

Proof of work requires users to mine or complete complex computational puzzles before submitting new transactions to the network. This expenditure of time, computing power and energy is intended to make the cost of fraud higher than the potential rewards of a dishonest action. On the Proof of Work blockchains, mining involves using computing power to hash the block’s data until a valid solution is found. For major cryptocurrencies today, the solutions are getting more challenging to find and the process of guessing massive amounts of hashes can be expensive in terms of hardware and electricity. Those vying for proof of stake have good reason to believe proof of work might become a thing of the past.

Что такое Proof of Stake (PoS) и как он работает?

Firstly, to have the opportunity to validate transactions, the user must put their coins into a specific wallet. This wallet freezes the coins, meaning that they are being used to stake the network. Most Proofs of Stake blockchains have a minimum requirement of coins required to start staking, which of course requires a large upfront investment. Proof of Stake vs Proof of Work For its part, proof of work enables agreement on which block to add by requiring network participants to expend large amounts of computational resources and energy on generating new valid blocks. Proof of stake requires network participants to stake cryptocurrency as collateral in favor of the new block they believe should be added to the chain.

In a similar vein, under proof of work systems like Bitcoin, owning the coins does not give the holder more power. In proof of stake, however, the more coins you own, the greater your voting power. Critics argue this leads to a “the rich get richer” situation, resulting in a less decentralized system. Whoever guesses the combination correctly first gets to update the ledger with that specific collection of transactions. To participate in this competition, you need a powerful computer that guesses as many possible combinations of numbers as quickly as possible.

• Most Proofs of Stake blockchains have a minimum requirement of coins required to start staking, which of course requires a large upfront investment.
• Interestingly, the developers made a few changes to the original code, which allowed the network to process transactions in just 16 seconds.
• A proof-of-work system requires fast computers that use large amounts of energy resources.
• Carefully weigh the trade-offs between security, scalability, energy efficiency, and decentralization to make the best decision for your project within a blockchain network.

Meanwhile, proof of work achieves consensus by requiring participants to spend computational power — and electricity — in order to generate a new valid block. The main issue with proof of stake is the extensive investment upfront to buy a network stake. Those with the most money can have the most control because of the algorithm weight to choose the validator.

• “The more computers that you need to ensure the network is robust and functioning, the more energy that is consumed.”
• Proof-of-Stake is an encryption technique adopted by crypto networks such as Cardano (ADA) and Ethereum (ETH).
• “This is computationally intensive and is one of the reasons that many people are concerned about the environmental impact of the Bitcoin network,” says Mulligan.
• Liquid staking providers such as Lido offer a way for users to earn rewards while maintaining portfolio liquidity.
• If a computer tries to manipulate or commit fraudulent transactions on a network, it will be known through the public, immutable nature of the blockchain.

As you can imagine, thousands of people use Bitcoin, Ethereum and other blockchains that use the Proof of Work model. In my example below, I am going to use Bitcoin, however, the process is the same across alternative Proof of Work blockchains. Nevertheless, the scalability issues that Proof of Work has caused Bitcoin is also a problem for Ethereum. The maximum amount of transactions that the Ethereum blockchain can process is 15, which again, is substantially lower than the network needs.

Proof of Work (PoW) vs. Proof of Stake (PoS)

In this article we’ll explore what consensus mechanisms are, and how proof-of-stake differs from proof-of-work. Bitcoin, and other cryptocurrencies such as Dogecoin and Litecoin, secure their networks using the proof-of-work (PoW) consensus mechanism. On the other hand, the invention of liquid staking derivatives has led to centralization concerns because a few large providers manage large amounts of staked ETH.