In this post, we’ll unpack all you need to know about Proof Of Work and Proof Of Stake, defining exactly what they are, distinguishing the differences between them and more.
What Are Proof Of Work & Proof Of Stake?
Proof Of Work (PoW) and Proof Of Stake (PoS) are algorithms, also known as consensus mechanisms, that cryptocurrencies use to validate and publish transactions onto the blockchain network and maintain its security.
An example of a cryptocurrency that uses PoW as its consensus mechanism is Bitcoin. An example of a cryptocurrency that uses PoS as its consensus mechanism is Ethereum.
Using different methods, both PoW and PoS ensure users on the network are honest with transactions by incentivising good actors and dis-incentivising bad actors.
The Differences Between Proof Of Work & Proof Of Stake
While the end outcome is the same for both Proof Of Work & Proof Of Stake ― data verification and a successful transaction ― the path to get there is different.
PoW Uses cryptographic hashes and computational power to mint blocks on the network and validate transactions. PoS uses deterministic algorithms and capital accumulation to mint blocks on the network and validate transactions.
With PoW, miners on the network are incentivised with block rewards. With PoS, miners on the network are incentivised with transaction fees.
PoW tends to be more decentralized, more secure and requires less capital, however, it also tends to have slower transaction speeds, higher costs and higher energy consumption. PoS tends to me more centralised, less secure and requires more capital, however, it also tends to have higher transaction speeds, lower costs and lower energy consumption.
In order to hack a PoW network, users require more than 51% of the computational power on the network. In order to hack a PoS network, users require more than 51% of the cryptocurrency tokens on the network.
Proof Of Work Versus Proof Of Stake Summary
Below is a table summarising the differences between Proof of Work and Proof of Stake.
| PoW | PoS | |
|---|---|---|
| Mechanism | Hashes | Algorithms |
| Incentive | Block Rewards | Transaction Fees |
| Authority | More Decentralised | More Centralised |
| Security | More Secure | Less Secure |
| Capital Required | Low | High |
| Transaction Speed | Slow | Fast |
| Transaction Fees | High | Low |
| Energy Consumption | High | Low |
Summary (TL;DR)
Proof Of Work and Proof Of Stake are the two primary mechanisms cryptocurrencies use to verify transactions, add them to the blockchain network and maintain the network’s security.
While they both achieve the same goal, PoW and PoS employ uniquely different strategies in order to incentivise good actors and dis-incentivise bad actors on their respective networks.
