Staking basics

Proof of Work vs Proof of Stake

Shivendra Singh

Apr 15, 2023 • 7 min read

Proof of Work

Proof of Work (PoW) is a consensus mechanism that is used to verify and authenticate the transactions in the Blockchain Networks. The PoW mechanism is used to add new blocks to the blockchain. A consensus mechanism is an approach used in decentralized systems to ensure that all participants agree on the present-day state of the blockchain. In terms of blockchain technology, a consensus mechanism validates transactions and adds them to the blockchain.

In PoW mechanism, the miners compete to solve complex mathematical problems and the first miner who solves the problem gets rewarded with a given amount of crypto as a prize.

While solving these problems, a big amount of computing power is used to solve the problem. After the problem is solved, the miner shares his solution to the network, and other nodes in the network to verify the solution. Then, if the solution is found to be correct, the new block is added to the blockchain, and the miner is rewarded with the cryptocurrency.

Also read: What Is Cryptocurrency

The PoW consensus mechanism is decentralized, which means no single entity has control over the network. It is also very secure and less vulnerable to cyber attacks due to the high computational energy required to solve mathematical problems.

However, the network also has some drawbacks including the potential for the network to be centralized if a small group of minors has a majority of the network's computational power.

Advantages of Proof of Work(PoW)

Some of the advantages of Proof of Work (PoW) are listed below:

Security: Due to the high computational power required to solve the mathematical problems to verify the transactions, PoW is considered to be a highly secured consensus mechanism which makes it difficult and costly to manipulate the blockchain.
Decentralization: PoW is designed to be Decentralized which means the network does not have a single entity controlling the network making the network resistant to manipulation and censorship.
Rewards: PoW rewards the miners to work with honestly and maintain the integrity of the blockchain in terms of cryptocurrency.

Also Read: Decentralisation in ETHx

Disadvantages of Proof of Work (PoW)

Some of the disadvantages of Proof of Work (PoW) are listed below:

High Energy Consumption: Due to the high computational power requirement needed for solving highly complex problems, the energy consumed can have greater environmental issues related to it.
Centralization: Due to the high computational power required, it can be difficult and expensive for individuals or small groups to participate in the network. This can lead to centralization, where a small number of players can control the network.
Scalability: PoW is not very scalable, because as the number of transactions increases on the network, the more computational power is required to verify them. which leads to slow transactions and higher fees.

Proof of Stake

Proof of Stake (PoS) is a consensus mechanism used in blockchain networks to verify and authenticate transactions. PoS was born as a solution to the shortcomings observed on PoW.Unlike Proof of Work (PoW), which requires miners to solve complex mathematical problems to add new blocks to the blockchain, PoS allows validators to add new blocks based on their ownership stake in the network.

In Proof of Stake (PoS),the validators stake their cryptocurrency holdings as collateral, as a form of guarantee that they will work for improving the network. The more the number of cryptocurrency a validator has, the more is their chances of being chosen to add the next block to the blockchain which means that the validators with larger stake in the network are more likely to be chosen to add new blocks. Few actions including helping to maintain the network infrastructure, verifying the transaction are required for maintaining the security and integrity of the network by Validators. In case the validator performs their duties or tasks, they can end up losing their stake which is for disincentivizing bad behaviour. This helps to ensure that the network remains secure and reliable. PoS is way more energy-efficient than PoW, as it doesn't need the same level of computational power to solve complex problems. It's also more scalable than PoW, as it has the capacity to handle a larger number of transactions with faster confirmation times. PoS also do have some drawbacks including the threat of centralization if a small group of validators have majority of the network's stake, also the validators also need to have sound technical knowledge and infrastructure to participate in the Network.

Also Read: What is Liquid Staking

Advantages of Proof of Stake(PoS)

Some of the advantages of Proof of Stake(PoS) are listed below:

Energy Efficiency: PoS is a way more energy-efficient than PoW, because it doesn't require the same level of computational power to solve complex mathematical problems which makes it a more environmentally friendly option.

Scalability: PoS is more scalable than PoW, because it can handle a large number of transactions with faster confirmation times.

Secured Network: PoS is a highly secured network. Validators get financial incentives to maintain the integrity of the network. Validators acting maliciously can lose their stakes, serving as a disincentive for bad behavior.

Disadvantages of Proof of Stake(PoS)

Some of the disadvantages of Proof of Stake(PoS) are listed below:

Centralization: PoS is vulnerable to centralization of the Network. If a small number of validators gets a majority portion of the network's stake, it can lead to a concentration of power in the hands of a few players, which could be detrimental to the network's security and decentralization.

Initial Distribution: The initial distribution of cryptocurrency can be challenging in a PoS network , as it needs a transparent process to ensure that no individual or group holds a disproportionate amount of the cryptocurrency. This could be difficult to achieve in practice for the network.

Also Read: What are Smart Contracts

Proof of Work (PoW) and Proof of Stake (PoS) difference?

Proof of Work (PoW) vs Proof of Stake (PoS) are two different consensus mechanisms used in blockchain networks to authenticate and verify transactions of the network. The major difference between proof of work vs proof of stake is the difference in methods used to add new blocks to the blockchain and incentivize the network participants.

In PoW mechanism, the miners compete to solve complex mathematical problems and the first miner who solves the problem gets rewarded with a newly minted cryptocurrency and transaction fees. This requires a lot of computational power and electricity to participate, as well as specialized hardware.

In PoS, validators put up a stake of cryptocurrency to participate in the network. The amount of cryptocurrency a validator holds determines their chances of being chosen to add the next block to the blockchain which means that validators who have a larger stake in the network are more likely to be chosen to add new blocks. Validators are also required to perform certain actions to ensure the security and integrity of the network.

The Proof of Work vs Proof of Stake mechanisms can be summarized as follows:

Participation in the Network: In PoW, the hashrate (your computational power) defines your weight on the network. On PoS, it is the size of your stake that defines your weight.

Energy Consumption: PoW requires a huge amount of computational power and electricity to participate, while PoS is more energy-efficient and consumes less power.

Decentralization: PoW can be vulnerable to centralization due to the concentration of computational power and specialized hardware. PoS is more likely to be decentralized, as it doesn't require specialized machines or large amounts of electricity to participate in the network.

Both PoW and PoS have their own pros and cons, and the choice of consensus mechanism depends on the specific requirements of the blockchain network.

When should PoW or PoS be used?

The choice between Proof of Work (PoW) vs Proof of Stake (PoS) consensus mechanisms depends on the specific requirements of the blockchain network. Some factors to consider when deciding which consensus mechanism to use:

Security: If security is a top priority, PoW should be the better choice. PoW is highly secure due to the higher computational power required to solve mathematical problems. However, PoS can also be designed for high security if implemented correctly.
Energy Efficiency: If energy efficiency is a priority, PoS should be the better choice. PoW needs a significant amount of computational power and electricity to participate, while PoS is more energy-efficient and consumes less amount of electricity.
Decentralization: If decentralization is a priority, PoS may be the better choice. PoW is more vulnerable to centralization due to the concentration of computational power and specialized hardware. PoS is designed to be more decentralized, as it doesn't require specialized hardware or large amounts of electricity. However, there are cases where we can have PoW more decentralized than the PoS networks.
Scalability: If scalability is a priority, PoS can be the better choice. PoW can be slow and congested as the number of transactions on the network increases, while PoS can handle a large number of transactions with faster confirmation times.

Also Read: What is Matic?

In summary, both PoW and PoS have their own advantages and disadvantages, so the choice between the two should depend on the requirements of the blockchain network.

Also, if you're looking to liquid stake your cryptocurrencies where you can earn staking rewards as well as at the very same time access the DeFi protocol, Stader Labs can be a good option where you will get Stader's LSTs in return for your staked cryptocurrencies .

Frequently Asked Questions(FAQ’s)

Q) Is PoS better than PoW?

Ans) Both the consensus mechanisms have their own pros and cons and the question of one being better than other depends on the use case of the network. If Energy Efficiency, Decentralization or Scalability is a priority for the network PoS should be the choice or else if Technical Expertise or Security is a priority for the network PoS should be the choice of the network.

Q) What is proof of stake and proof of work in Blockchain?

Ans) Proof of Stake (PoS) are both consensus mechanisms used in blockchain networks to verify and authenticate transactions. Proof of Work (PoW), requires miners to solve complex mathematical problems to add new blocks to the blockchain whereas Proof of Stake (PoS) allows the validators to add new blocks based on their ownership stake in the network.