Proof of work vs proof of stake is a concept that comes with blockchain technology. Many companies have adopted its technology due to its advantages and reliability.
Basically, these two terms are related to verifying transactions made on the crypto network and adding the transaction to the blockchain. The whole concept and logic behind the network of crypto are based on decentralization.
The power to verify the transactions is available to everyone and they do it through these two concepts. So let’s discuss these two concepts and understand what both terms mean and cover the detailed explanation
Proof of Work
Proof of work is the original concept of mining crypto coins. It is the underlying mechanism that validates transactions and creates new blocks in a blockchain.
This algorithm was designed to provide a secure, decentralized, and trustless system. In which multiple parties can transact with each other without the need for a central authority.
Although, Proof of work is a computationally intensive process that involves solving a complex mathematical puzzle, which requires supercomputers.
It requires large amounts of energy to run those computers for a long number of hours which is quite a time taking process.
The first node that solves the puzzle receives a block of newly minted cryptocurrency as a reward. This process is known as mining.
The difficulty of the mathematics is adjusted to ensure that a new block is created every 10-15 minutes on average. Although, if someone adds more computational power to the network, the puzzle’s difficulty increases.
Similarly, if someone adds less computational power, the difficulty decreases, making it easier to solve. This approach creates balance in the crypto network.
Proof of Stake
Due to limitations of proof of work such as its scalability and environmental impact. As the popularity of blockchain technology grew, so did the concerns about the environmental impact of Proof of work.
The introduction of the Proof of Stake algorithm in 2011 aimed to overcome the limitations of the existing system and provide a more energy-efficient alternative.
The algorithm aims to reduce the computational power required for validating transactions while maintaining the same level of security as Proof of Work.
Validators who validate transactions in a Proof of Stake system are selected based on the cryptocurrency they hold. Validators who hold a higher amount of cryptocurrency are more likely to be selected for validating transactions.
Furthermore, validators must put their cryptocurrency at stake as collateral, which they may lose if they validate fraudulent transactions. This process is known as slashing.
Validators who try to add fraudulent transactions may have a portion of their stake slashed, which serves as a penalty.
The following are some examples of actions that may result in slashing
- Contradicting validation: Validators who engage in double-signing may face penalties, such as having a portion of their stake slashed. It is considered malicious because it can cause a fork in the blockchain and lead to a loss of consensus.
- Unavailable for a long time: Validators are expected to be online and available to validate transactions in a Proof of Stake system. If a validator goes offline for an extended period or fails to validate transactions, they may be penalized by having a portion of their stake slashed.
- Block validation: If a validator validates an invalid block or fails to detect an invalid block, they may also face penalties such as having a portion of their stake slashed.
The network distributes a reward as cryptocurrency (Ethereum) to all participating validators in proportion to each validator’s stake.
We can’t say that the proof of stake is a perfect algorithm to mine bitcoin as it also has its limitation.
Such as it can lead to the centralization of the network. The selection of validators to validate transactions is based on the amount of cryptocurrency they hold in their wallet.
The validators holding a significant amount of cryptocurrency have a higher chance of being selected.
Another disadvantage is that it requires validators to hold a certain amount of cryptocurrency, which can be a barrier to entry for some users.
This could lead to a lack of participation in the network and could make it more difficult for the network to achieve consensus
Proof of Work vs Proof of Stake
Both the concepts and algorithms have their advantages and disadvantages. In terms of proof of work vs proof of stake, they differ in their approach to achieving consensus.
One is more energy-intensive, more decentralized, and more secure, but Proof of stake is faster and more flexible. Besides, the choice depends on the specific needs and requirements of the blockchain network.
| Basis | Proof of Work | Proof of Stake |
|---|---|---|
| Energy consumption | High | Low |
| Requirement | Supercomputer | Cryptocurrency for stake |
| Time taken | Takes lot of time | Takes less time |
| Investment | Investment to buy hardware (supercomputer) | Investment to buy crypto for stake. |
| Reward | Bitcoin as reward | Transaction fee |
| Condition for reward | Reward is given when block is added | Transaction fee is given when validation is done |
So we have covered the most simple explanation between Proof of Work vs Proof of Stake. We cannot consider one as better than the other as both have their own pros and cons. But we will keep providing you with such an informational blog.
Stay Tuned
ADIOS!
Dushyant is an enthusiastic and quick learner in all fields who likes to gain experience, loves to write, and works on his creativity. He loves to explore new things and information and has the potential to spread knowledge across the world. He believes in teamwork and helping others and has a strong belief in learning from our own life experiences and exploring more through our mistakes as everyone has a story to create. His hobbies include sports, drawing, learning new things, and a deep interest in geopolitics.
