Proof of Work vs Proof of Stake? What’s the difference

October 4, 2022

Bitcoin

Proof of Work vs Proof of Stake? What’s the difference

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Cryptocurrencies operate in a decentralized manner, and they often need computers to validate and process transactions. Therefore, consensus mechanisms like Proof-of-Work and Proof-of-Stake exist to validate transactions and secure the blockchain. However, since the consensus mechanisms differ, there is a need to compare them to see which is better and which would be more profitable to miners and the blockchain.

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Proof of work

Proof of work, also known as PoW, was adopted into the security of digital currencies in 2004. Hal Finney, who arranged the sequence using the SHA-256 hashing algorithm, used it on digital currencies. However, PoW did not become popular in the digital currency world until Bitcoin adopted the system when it launched in 2009. To test the success of the PoW consensus mechanism, Hal Finney was the first recipient of a bitcoin transaction.

Proof of work is a computing system that requires much effort to determine insignificant and tricky computer uses such as sending spam emails or a denial of service attack. Finney repurposed this to secure digital currency.

Pros and cons of Proof of Work (PoW)

Most people use digital currencies because they are much more decentralized than traditional currencies. Proof of work ensures a more decentralized method of validating blockchain transactions. However, this process involves the use of a lot of computers to review and approve transactions.

While most crypto enthusiasts would be satisfied with the PoW because it is more decentralized, using more computers increases power consumption. Recently, digital currencies have been criticized for the amount of power that they use and the impact it has on the environment.

Although crypto enthusiasts prefer PoW, it also harms the environment because it consumes a lot of power to keep the computers functioning.

Power is not the only thing that gets used excessively when many computers are involved. The computers are expensive and manned by people who need to be paid. Using a lot of computers means you get to spend more; hence validating a transaction will cost more.

Because of the expensive nature of validating transactions, some transactions in Proof of work are slower. It is still difficult to abandon Proof of work because it has better security than the alternative. The transactions may be more secure, but the speed of a transaction has become very important in the crypto industry.

Proof of stake (PoS)

Proof of stake, also known as PoS, was created as a replacement for Proof of work. The system uses an original consensus to validate transactions and create new blocks. It is also used to keep the database secure. In cryptocurrency, the blockchain is the database, so Proof of stake acts as a security mechanism for the blockchain.

Proof of work was very effective, but it had a lot of flaws which Proof of stake was invented to take care of. While Proof of work requires the miners to solve crypto puzzles, Proof of stake requires the miners to hold and stake tokens to benefit from transaction fees.

Pros and Cons of Proof of stake

The greatest disadvantage of Proof of work is the amount of energy it takes to validate transactions. On the other hand, Proof of stake is structured to use even less power. The difference in power consumption between Proof of work and Proof of stake is very noticeable, so the environmental impact is less.

Although Proof of stake uses less power than Proof of work, the transactions are faster and more efficient. Therefore, most crypto enthusiasts find adopting the proof-of-stake model easily.

Proof of stake offers financial opportunities to the crypto enthusiast. The structure for compensation in Proof of stake is very inviting. Proof of stake allows you to lock your tokens in a liquidity pool for a time frame and get a reward for more coins. The advantages make this validation method open to fewer attacks; hence Proof of stake is seen as less risky than Proof of work.

Proof of stake would be a perfect alternative for Proof of work, but it made transactions harder to decentralize, which is a priority for crypto enthusiasts. Aside from struggles with decentralization, Proof of stake also has less security than Proof of work.

Conclusion

With the recent reforms in the crypto industry regarding the environmental impact, Proof of work would likely be adjusted or completely abolished. However, Proof of stake is still in its market infancy stage.

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