Proof of Work vs Proof of Stake — What’s the Difference

While Ethereum currently becomes a hot topic due to its future upgrade to the PoS algorithm, it’s probably time to remember why PoS is considered a better algorithm than PoW. To summarize everything in advance: it’s even more secure and less demanding in terms of resources, it doesn’t require expensive equipment to produce new blocks thus allowing to process many times more transactions per second. Let’s see why it works this way.

Proof-of-Work

PoW was the original scheme for Bitcoin and was the only viable way to maintain security back then. The whole network works on the mathematical task of finding the hash number that starts with 0000 and the node that finds it generates the next block with all the current transactions in the queue, sends it to the whole network and receives a reward. The more computational power a node has, the more chance it has to find this solution. PoW blockchains can’t scale well because of this, because otherwise malicious miners will try to attack the network trying to double spend their coins, canceling their own previous transactions. All PoW protocols are very hardware-dependent and consume a lot of electricity. Also, they are very slow, and the new Proof-of-Stake algorithm is designed to solve this.

Proof-of-Stake

PoS algorithm is totally different from PoW in terms of security approach. It doesn’t require any computational power to generate blocks, it needs the internal resources of the network itself, its tokens, to be staken to generate blocks. The node that has the largest amount of tokens has the highest chance of finding the block. On the other hand, the punishment for malicious actions in PoS blockchains are harder — if someone attempts to perform an attack, their tokens get destroyed. Given that tokens have a certain market value, it can cost a lot. All blockchain systems have such design to make attacking pointless. But while PoW algorithms simply try to prevent it by making it too expensive to buy all hardware for an attack, and if it fails, attackers still have their hardware and can make another attempt, PoS algorithms make it impossible to repeat.

Since it doesn’t involve complex calculations, PoS blockchains can have much higher throughput than PoW systems, thousands of transactions per second. Also, there are many additional technologies developed right now — such as sharding and layer two solutions. Sharding allows to divide the whole network into many smaller pools (shards), each one of them processing its own blocks and verifying its own set of transactions, all of them synchronized by the main beacon chain. Layer two solutions serve the purpose of moving some load from the main chain to additional chains and using it only to finalize a certain chain state from time to time.

What is better in the end

Anyway, even while the PoS algorithm is superior with all its features, PoW is a lot more stable and tested. A lot of PoW blockchains are up and running for a long time, including Bitcoin. All PoS blockchains are yet a great idea that has to prove its viability. But anyway, all of them will find their own segment on the market and their application. If you’re interested in any of these applications, and you want to run a node of any PoW or PoS blockchains, you can use a SaaS solution such as GetBlock.io.

Originally published at getblock.io on September 8, 2020.

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