Proof of Work, Proof of Stake & Pure Proof of Stake: An Evolution in Distributed Consensus

While this is true, all blockchains — whether they are proof-of-stake or not — are slowed by the process of nodes reaching a consensus after a validator broadcasts the newly found block to them. Electronic waste may be the most valid criticism of the bitcoin network’s consumption of resources. Sometimes poor conditions like humidity, high temperatures and inadequate ventilation impact mining facilities and shorten equipment lifespan. To lower their costs, mining companies constantly seek out the most efficient ways to mine. This process inherently rewards those who can find the cheapest forms of energy and come up with newer technology to create faster and more efficient chips for mining.

In September 2019, China was responsible for over 70% of Bitcoin’s hashrate because of these cheap power sources. China later banned crypto mining as it sought to create its fiat digital currency. The move forced the massive exodus of miners to other areas where power is cheap.

proof of stake vs proof of work

Binance, Kraken, Coinbase, and KuCoin are among the most popular and reliable options. Anyway, in this Proof of Work VS Proof of Stake guide, I am going to start by explaining the basics of each model, followed by which popular blockchains have adopted them. Or maybe you just want to know a little more about the process of how to mine Ethereum, Bitcoin, Dash and other popular blockchains that use Proof of Work?

I have also listed some of the solutions that the Proof of Stake model brings to the cryptocurrency industry. However, as blockchain technology becomes more advanced, lots of other consensus algorithms are hitting the market, all with their pros and cons. Both of these models are called ‘consensus mechanisms’, and they are a current requirement to confirm transactions that take place on a blockchain, without the need for a third party. The energy consumption is significantly less because proof of stake chooses validators randomly instead of miners completing complex puzzles.

  • And that’s why proof of work may be the best method for some operations.
  • There is no need to spend on electricity or purchase specialized hardware.
  • While there are questions as to whether proof of stake can prove itself, it has the benefit of incorporating measures to ensure that validators behave well and approve only valid blocks.
  • A defining characteristic of most of the largest cryptocurrencies is that they are decentralized.
  • If you had enough money to meet the minimum staking requirement (which most people don’t) then you can guarantee yourself a very good return on your investment.

These “richer” validators can also influence the voting on the network, as PoS blockchains often grant validators governance rights. To ensure that transactions recorded ethereum proof of stake model on a blockchain are valid, these networks adopt different consensus mechanisms. Created by Satoshi Nakamoto, it’s considered by many as one of the safest alternatives.

However, most PoS networks require you to run a validator node to begin confirming transactions. This can be expensive to run, but not as much as several mining rigs. Users then stake their tokens behind certain validators, giving us a similar model to mining pools. So while Proof of Stake is easier to participate in for an average user, it is still susceptible to the same centralization issue as mining pools. Proof of Work (PoW) and Proof of Stake (PoS) are the most common consensus mechanisms.

proof of stake vs proof of work

This puzzle takes large amounts of costly energy to solve, ensuring participants are more likely to be genuine. Should everything check out, the new block is “chained” onto the previous block, creating a chronological chain of transactions. The miner is then rewarded with bitcoins for supplying their resources (energy). Proof-of-work and proof-of-stake are consensus mechanisms, or algorithms, that allow blockchains to operate securely. These consensus mechanisms keep blockchains secure by allowing only genuine users to add new transactions. Miners pledge an investment in digital currency before validating transactions with proof of stake.

For example, to validate transactions for the Dash network, you would be required to stake and freeze a minimum of 1,000 Dash coins. During the cryptocurrency’s all-time high in December 2017, where Dash reached more than $1,500 a coin, it would have cost the real-world equivalent of $1.5 million. Because proof-of-stake validators don’t necessarily require expensive hardware or tons of energy to run, attackers only incur the upfront cost of purchasing tokens rather than ongoing energy costs. Some blockchains have structured their systems so that validators who surpass a certain threshold of coins begin receiving fewer rewards.

Also, if you decide to exchange them to other coins, choose reliable crypto exchanges, such as KuCoin, Coinbase, Kraken and Binance. The second concern that some people have about Proof of Stake is that it allows people to verify transactions on multiple chains, which Proof of Work doesn’t. The reason this could be an issue is that it might allow a hacker to perform a double-spend attack. If you had enough money to meet the minimum staking requirement (which most people don’t) then you can guarantee yourself a very good return on your investment. Those who have the most money will always have the best chance of winning the reward, making the rich richer.

A 51% attack is used to describe the unfortunate event that a group or single person gains more than 50% of the total mining power. If that happened in a Proof of Work blockchain like Bitcoin, it would allow the person to make changes to a particular block. If this person was a criminal, they could alter the block for their gain. What this has resulted in is centralized organizations buying thousands of devices (known as ASIC’s) which generate the highest mining power. This type of operation is known as a ‘mining pool’ and it allows people to ‘pool’ their resources together to give them the greatest chance of solving the cryptographic sum first.

Peercoin was the first to adopt it in combination with PoW, but the consensus algorithm has rapidly become more prevalent in all its variations. For understanding both the consensus algorithm in detail, you must know the difference between them. Proof of work differs from Proof of Stake, and we will be discussing some significant differences below, considering some specific parameters. The content published on this website is not aimed to give any kind of financial, investment, trading, or any other form of advice. does not endorse or suggest you to buy, sell or hold any kind of cryptocurrency.

Should a bad actor seek to attack a proof-of-work network, they would need to buy enough hardware to represent the majority of the network, and then they would need to pay to run it all. The two-fold security system of the initial cost of equipment and the ongoing energy costs makes attacking the network less realistic. Proof-of-stake systems only have initial upfront costs to participate, leaving them more open to attack. Bitcoin and other proof-of-work blockchains, like Ethereum, consume significant amounts of energy to provide their security model to their networks. Bitcoin consumes more power than entire nations, including Ukraine and Norway. The provinces began mining bitcoin to harness surplus energy and converted it to have tradeable value.

As a result, other consensus mechanisms have been created, with one of the most popular being the Proof of Stake model. Proof of Stake was first created in 2012 by two developers called Scott Nadal and Sunny King. At the time of its launch, the founders argued that Bitcoin and its Proof of Work model required the equivalent of $150,000 in daily electricity costs. In proof-of-stake, validators are chosen to find a block based on how many tokens they hold, rather than a competition among miners to solve a puzzle.