Proof of Stake (POS) vs Proof of Work (POW) - which is better?

Proof of Stake vs Proof of Work- which is better?

Proof of Stake (PoS) and Proof of Work (PoW) are two general types of consensus mechanisms that are a vital aspect of blockchain technology. Consensus mechanisms are critical to the operation of distributed ledgers - a fundamental element of blockchain technology that allows it to operate without a central authority.

The main role of the consensus mechanism is to verify the information added to the book, ensuring its accuracy and reliability. This confirms that the next block added to the network is the most recent transaction, preventing double costs or any other data changes in the system. In essence, the reconciliation mechanism ensures that the entire blockchain network is collectively consistent with the contents of the register, in addition to providing secure and valid blockchain-based transactions.

Although there are several different consensus mechanisms today, PoW and PoS are the most popular consensus mechanisms on the blockchain. They vary greatly in functionality, as well as pros and cons, as we discuss in this part.

Proof of Work (PoW)

Proof of Work (PoW) is built on cryptography, an advanced form of mathematics that once solved problems with an authentic transaction. Basically, miners solve complex math problems and get credit for adding a verified block to the blockchain. Finding solutions to math problems or asymmetric puzzles is not an easy task and involves the use of significant computational resources to solve them. No skill is required to solve complex problems; brute force is needed instead. Once the computer guesses the correct solution to the puzzle, it checks other computers on the network. The system quickly checks for problems.

Contrary to the opinion of most bitcoin lovers, PoW existed long before the appearance of bitcoins or any other crypto asset. The idea of ​​PoW was attributed to Cynthia Dvork and Moni Naor in 1993, when Marcus Jacobson coined the term “Proof of Work” in 1999. However, the creator of Bitcoin, Satoshi Nakamoto, was the first to use it in practice.

How it works? Bitcoin mining example

As mentioned above, PoW involves miners solving a cryptographic puzzle to verify the transaction. Miners compete to solve the problem by providing the correct answer, also known as a hash. As soon as computers on the network authorize each transaction, miners receive a reward in the form of their own blockchain currency in addition to the transaction fee.

When mining bitcoins, a group of network transactions is collected in a memory pool, also called mempool. Miners then compete to test every sale at mempool, using significant processing power to solve a math puzzle. The first miner who solved the problem receives a reward for the block plus commissions for network transactions. Mempool now becomes verified and is added to the blockchain in the form of a block. Hashcash (SHA-256) is proof of the function used by Bitcoin miners to solve complex puzzles and add blocks to the block chain.

Consensus Confirmation Key Features

  • Asymmetric puzzles that prevent miners from solving the problem. However, the network quickly checks the correct answer.
  • Solving the puzzle doesn't require any technical skill, but brute force. The best way to effectively solve a problem is to increase processing power.
  • When solving puzzles, the parameters are updated after a certain period, so that the block time can be consistent.

Proof of Stake (POS)

The consensus in PoS is quite different from PoW in the sense that there is no mining, since the power of the currency replaces the computing power. With the help of PoS, miners do not solve asymmetric puzzles. Instead, the miner places a bet or holds a few coins to check the block of transactions. A miner, called a text block counterfeiter, is selected using a deterministic approach based on their stake of coins. Asymmetric puzzles in PoS are much simpler, and counterfeiters only need to prove that they own a certain percentage of all coins available in a given currency. For example, if someone owns 2% of all Litecoin (LTC), they can mine 20% of all transactions.

How does PoS work?

In PoS, as mentioned above, counterfeiters must deposit their coins in a specific wallet in order to be able to verify transactions. A portfolio will freeze coins and put them on the network, which means that you cannot withdraw coins. Once the coins are at stake, the validators bet on the block, which, in their opinion, will be added next to the chain. If the selected block is added, they receive a reward for the block depending on the share of their bet.

Benefits of proof of stake over proof of work

In recent years, the crypto space has been moving towards PoS services, which is explained by the advantages that it offers compared to PoW. PoS is undoubtedly better than PoW, as described below.

  • Energy Efficiency
    The main problem with PoW is that the required computing power is very energy intensive and negatively affects the environment. For example, the Bitcoin network’s annual energy consumption is 57,6 TWh, which corresponds to all the energy consumed by Colombia. PoS systems are much more energy efficient since they do not require mining, which is energy intensive. Consequently, they represent an energy-efficient alternative to Proof of Work systems.
  • Centralization of mining pools
    PoW systems are at high risk of centralization. Mining pools are formed by individual miners who accumulate their resources in order to maximize remuneration, as well as save on initial starting capital. Some mining pools are full-blown business operations in which thousands of employees even work and millions of dollars are invested in specialized mining equipment, for example, ASCIS, to maximize mining power. The problem with mining pools is that centralized PoW networks make it vulnerable to hacker attacks, for example, 51% of attacks. This does not apply to PoS networks, as the rewards are based on the delivered coins.
  • Economic benefits / dividends to its users
    Another advantage of PoS over PoW is that it provides economic benefits (dividends) for its users, allowing you to run a master node or put coins in a platform for bets and master codes, such as MyCointainer. This is not possible on PoW systems.

Mycointainer Is a top-notch online auto bet and master betting platform that helps users trade coins and generate significant betting profits. With MyCointainer, you can earn passively by adding coins to the auto-bet in the pool and profit from coin bets without worrying about the technical details. Users stake their coins as validators on the platform and in turn receive rewards for their investments.

Final thoughts

PoS represents a better blockchain negotiation mechanism than PoW due to the various features they offer. PoS systems are energy-efficient, secure and provide economic benefits through master nodes and betting platforms, in particular MyCointainer. Users place their coins on the network and, in turn, passively earn on their bets without much hassle. However, PoS still has its vulnerabilities, but is a better choice than PoW.

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