The blockchain is made up of numerous blocks, each holding recorded transactions. However, before a block can be added to the blockchain, it must be either validated or verified. This is where the principles of Proof-of-Work and Proof-of-Stake become crucial…

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In this guide, you will learn the key differences between Proof-of-Work (PoW) and Proof-of-Stake (PoS): their advantages, disadvantages, the problems each consensus mechanism solves, and more.

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The blockchain consists of numerous blocks, each containing the transactions carried out. But before being integrated into the blockchain, each block must either be validated or controlled. And this is where the principles of Proof of Work vs Proof of Stake come into play…

Proof-of-Work vs Proof-of-Stake

Proof of Work: concrete example

Julien sends 1 ETH (Ethereum) to Nicolas. Before the transaction is finalized, miners must complete several checks:

  • They must ensure that Julien is who he says he is and not a usurper.
  • They need to make sure that Nicolas is who he says he is and not a usurper.
  • They must verify that Julien is in possession of the ETH he wishes to send to Nicolas.
  • They must verify that Julien is in possession of the ETH he wishes to send to Nicolas.
  • They must carry out complex calculations according to very precise formulas.
  • They must ensure that the ETH has been subtracted from Julien’s wallet and added to Nicolas’ wallet.
  • They must register this transaction in the ETH blockchain, where a trace will be present indefinitely.

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 Proof of Stake: concrete example

Julien sends 1 ADA (Cardano) to Nicholas. Before the transaction is finalized, validators must perform several checks:

  • They must ensure that Julien is who he says he is and not a usurper.
  • They need to make sure that Nicolas is who he says he is and not a usurper.
  • They must check that Julien is in possession of the ADA that he wishes to send to Nicolas.
  • Validators are selected based on the volume of ADA they have in their possession.
  • They can create blocks or confirm a percentage of transactions based on the tokens they have in stake.
  • They must ensure that the ADA has been subtracted from Julien’s wallet and added to Nicolas’ wallet.
  • They must enter this transaction in the ADA blockchain, where a trace will be present indefinitely.

Proof of Work: how does Proof of Work blockchain work?

It was with the creator of Bitcoin, Satoshi Nakamoto, that the principle of Proof of Work was born in 2008. In this system of validating blockchain blocks, miners confront each other with the aim of finding the “proof” first, i.e. the correct hash of the block. When a miner is the first to find this hash, he or she receives a reward in the mined cryptocurrency. And it’s through this reward that new tokens are put into circulation.

Proof-of-Work vs Proof-of-Stake

 PoW cryptocurrencies

If Bitcoin (BTC) is the very first cryptocurrency to use the proof of work validation system, others quickly followed. This is particularly the case for Ethereum, Dogecoin, Litecoin and even Monero.

The advantages of Proof of Work

These are some of the advantages of Proof of Work:

  • Reliability: Proof of Work is the oldest validation method. It has therefore had time to prove itself, especially since it is used by the most used cryptocurrency on the planet: Bitcoin.
  • Security: Proof of Work makes transactions secure through a majority vote.
  • Profitability: Proof of Work cryptocurrency mining is still profitable today, provided you benefit from attractive electricity rates.

The disadvantages of Proof of Work

These are some of the disadvantages of Proof of Work:

  • The ecological footprint: Proof of Work requires phenomenal computing power, provided by very energy-intensive machines. Mining farms present in many countries around the world such as Kazakhstan or Canada have a particularly  large carbon footprint.
  • The cost of electricity: This disadvantage is intrinsically linked to the previous one. The computing power necessary for PoW requires very energy-intensive hardware, which can significantly hamper the profitability of mining activity.
  • Elitism: Few individuals today can afford to invest in powerful and very expensive machines, gradually transforming mining into an elitist activity.

Proof of Stake: How does Proof-of-Stake work?

It is precisely to better deal with these disadvantages, and in particular ecological issues, that a new validation system has been put in place. Created in 2012, the Proof of Stake protocol works differently. When there is a block to validate, several validators stake a certain quantity of their own tokens, which will return to them once validation has been carried out. Once the transaction is validated, the validator receives a reward through the associated transaction fees.

The job of validators is to preserve and update a copy of the general ledger (blockchain file) by circulating transactions and pages from one node on a network to another. Validators must also ensure that transactions comply with the regulations put in place by the blockchain network, for example by ensuring that the sender does not send more cryptocurrencies than they hold. This validation work obviously requires energy, but much less than the energy used in mining cryptocurrencies in PoW mode.

 

PoS cryptocurrencies

Peercoin was the very first cryptocurrency to use Proof of Stake in 2012. It was quickly followed by other cryptocurrencies used around the world such as Cardano (ADA), Solana (SOL) and Algorand (ALGO).

 

The advantages of Proof of Stake

These are some of the advantages of Proof of Stake:

  • Low energy consumption: Because it does not require enormous computing power or energy-consuming machines, Proof of Stake is much more durable and environmentally friendly than Proof of Work.
  • Resistance to attacks: The calculations have been done, PoS is more than 50% more resistant to attacks than PoW. This is particularly due to the fact that with PoS, miners are not in competition with each other.
  • Scalability: PoS also has better scalability. This means that PoS transactions are managed much faster than PoW transactions.

The disadvantages of Proof of Stake

These are some of the disadvantages of Proof of Stake:

  • Elitism: Because PoS involves choosing the validators who put the most tokens into play, it can result that it is always the same validators who are chosen and therefore enrich themselves.
  • The risk of error: By relying on a single validator, there is a risk that the latter will not do its job correctly. However, in the event of validation of a faulty block, the validator risks losing all of the tokens involved, hence the reliability of the process. Back-up validator pools could also be set up soon to remedy this possible problem.
  • Little experience: Unlike Proof of Work, which has already proven itself, PoS is still very much in its infancy. It will only become mainstream after the launch of Ethereum 2.0, which is expected to move from the Proof of Work system to the Proof of Stake system by the third quarter of 2022.

Proof of Stake: the future of blockchain?

For many, Ethereum’s move from PoW to PoS consensus is the ultimate authentication that Proof of Stake is the future of blockchain.

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The limits of PoW

For several years now, Proof of Work has been in the news for the four major problems it raises:

  • Problem #1: The calculations are becoming more and more complex. When the first cryptocurrencies emerged, the mathematical operations were rather simple. Today, almost 15 years after the mining of the very first Bitcoin, miners must be equipped with increasingly powerful graphics cards to cope with computational difficulties. This is also partly one of the reasons which explains the current shortage of graphics cards on the market.
  • Problem #2: For centralization purposes. Directly linked to this race for power, there is a problem of centralization. Indeed, only the most powerful computers and groups of computers manage to be profitable in mining. It is therefore possible that in the future, only the most powerful players will manage to mine cryptocurrency, which would go against the very spirit of cryptocurrencies, namely decentralization.
  • Problem #3: For environmental impact. To carry out these increasingly complex calculations, the machines used for mining are increasingly energy-intensive. A study published in 2021 by the University of Cambridge shows that the energy consumption intended for Bitcoin mining alone represents the consumption of all of Argentina. This environmental cost is considered absurd for a virtual currency.
  • Problem #4: Lost validator commitment. Proof of Work requires a significant initial investment for the miner. Between the powerful machines purchased to carry out the calculations, the electricity spent and the operating costs inherent to the mining activity, the miner’s entire investment ends up lost after a few years. Conversely, Proof of Stake allows validators to recover their investment when they wish to withdraw from the game.

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PoS: the solution?

Technically, Proof of Stake solves all three problems mentioned above, with the possible exception of centralization. Indeed, to become a validator, a person must hold a minimum number of tokens, higher than most people can afford to purchase. For Ethereum, for example, the minimum number of tokens to become a validator will be set at 32 ETH, which still corresponds, in June 2022, to more than 32,000 euros.

ETH’s transition to Proof of Stake has every chance of revolutionizing the world of cryptocurrencies. Because to date, cryptocurrencies using this consensus remain in the minority and less popular than many others, like NXT, Cardano, Peercoin or even Tezos.

In addition to the sharp reduction in ecological impact, the adoption of consensus by a major cryptocurrency such as ETH could completely revolutionize the philosophy of blockchains, which today mainly use Proof of Work. If PoS manages to prove itself over time, it would be easy to imagine that other major cryptocurrencies will follow suit…

Conclusion

Proof-of-Work vs Proof-of-Stake

Both Proof of Stake and Proof of Work help validate and secure transactions carried out within the blockchain. Used since the creation of cryptocurrencies, Proof of Work (PoW) has long proven itself in terms of security. However, the immense energy expenditure, the centralization around mining pools and the lost investment of miners make it a validation system considered by many to be outdated. 

More recently, PoS makes it possible to partly overcome these shortcomings, particularly in terms of transaction speed and energy expenditure. However, a centralization problem could quickly emerge due to the number of tokens required to become a validator. Ethereum’s upcoming move to Proof-of-Stake consensus should soon answer outstanding questions.

PoS vs PoW FAQs

How does Proof of Stake work?

Proof-of-Stake (PoS) requires validators to hold and stake tokens for the chance to earn transaction fees. The winning node on the blockchain is often the one with a larger stake position.

What is Proof of Work?

Proof-of-Work is a capital-intensive validation procedure where nodes (miners) compete to solve complicated cryptographic puzzles, and if successful, are awarded tokens. Proof-of-Work in blockchain is the backbone for how Bitcoin originally functioned.

What is Proof of Work versus Proof of Work?

Proof-of-Stake (PoS) utilizes randomly chosen validators to verify transactions and create new blocks. On the other hand, Proof-of-Work (PoW) uses a competitive validation method to authenticate transactions and create new blocks to the blockchain.

What are the differences in earnings between miners and validators?

Miners (PoW) are rewarded by the new tokens created, while validators (PoS) are rewarded by receiving a portion of the transaction fees.

Why is Ethereum going to Proof of Stake?

Even if Proof-of-Work has proven itself for many years, particularly in terms of security, this consensus has a major drawback: it is very energy intensive. The move to Proof-of-Stake could be more than 99.9% less energy intensive than Proof-of-Work. The team behind ETH therefore wanted to become a pioneer in Proof-of-Stake.

Is POW consensus still legal?

The Proof-of-Work (PoW) consensus has many detractors. Sweden, in particular, plans to ban the mining of these cryptocurrencies due to excessive energy costs. A plan to ban Proof-of-Work (PoW) consensus has also been proposed by the European Union, although nothing has been decided yet.

How to become a validator?

To become a validator, you must commit a minimum number of tokens. For Ethereum, this number will be set at 32 ETH. To become a validator on Solana, there is no minimum stake

Is there a Proof of Work cryptocurrency?

There are various cryptocurrencies that utilize the Proof-of-Work (PoW) mechanism, such as Bitcoin, Litecoin, Monero, etc.

About the author

Tobi Amure

Tobi began his career in 2017 as a crypto writer, where he focused on producing educational content. He worked with Stockbossup, an investment platform dedicated to educating black people. Prior to that, he worked as a copywriter with Turboxbt, a crypto trading platform. In 2021, Tobi joined Watcher Guru as a crypto news editor. He was recognized as one of the top 333 web3 creators on LinkedIn for crypto in 2022.