Difference Between Proof-Of-Work & Proof-Of-Stake? (Get Free E-Book)

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proof of work vs proof of stake (1)

If you are interested in blockchain and invest in cryptocurrency then this topic is very interesting for you. 

A basic question must come to your mind: how is blockchain or cryptocurrency secure? And you are still searching how bitcoin, Ethereum, and other cryptocurrencies work.

Here, two important CONCEPTs work to make transactions happen securely.

  1. Proof of Work (PoW)
  2. Proof of Stake (PoS)

In the Blockchain network, you mostly hear these two concepts and you want to understand these concepts. But many non-tech-savvy people don’t understand them because they are technical.

But don’t worry here I will explain both concepts in very easy language.

Proof of Stake and Proof of Work are both blockchain-based computer algorithms that work on a distributed consensus system. They are responsible for the transactions of digital currencies such as Ethereum and Bitcoin.

⚠️Note: Before moving On Understand all about Blockchain and the Type of Blockchain Network.

What is Distributed Consensus Mechanism?

In simple words “distributed consensus” is a large pool of people who share a different consensus on something. This blockchain algorithm ensures consensus on a proposal between nodes in a distributed system.

For example: To do a successful transaction or add a block to the bitcoin blockchain, 51% of the people must agree to this transaction.

proof of work and proof of stake does work on the basis of distributed consensus mechanisms. So, understanding of consensus mechanism is also important for a person. 

So, without wasting the time let’s move further

There are lots of different types of consensus mechanisms available that are used in different blockchain or cryptocurrency networks. 

  1. Proof-of-Work
  2. Proof-of-Stake
  3. Delegated Proof-of-Stake
  4. Proof of Elapsed Time
  5. Simplified Byzantine Fault Tolerance
  6. Leased Proof-Of-Stake
  7. Directed Acyclic Graphs
  8. Practical Byzantine Fault Tolerance
  9. Delegated Byzantine Fault Tolerance
  10. Proof-of-Activity
  11. Proof-of-Importance
  12. Proof-of-Capacity
  13. Proof-of-Burn
  14. Proof-of-Weight

What is Proof of Work (PoW)? 

security proof of work

Proof-of-Work (PoW) is a blockchain algorithm based on a distributed consensus mechanism. This algorithm helps to solve a computational math problem for validating a transaction onto a blockchain. Most cryptocurrencies like Bitcoin, Litecoin, use this algorithm.

In the proof-of-stake model, cryptocurrency owners stake their coins for verifying a transaction in the blockchain. 

Hashcash is a proof of work function that generates a specific type of data that is used to verify that a sufficient amount of work has been done.

To solve a computational problem, bitcoin needs the high power of the computer and a particular time. 

Did you know: In 2009, Bitcoin established the proof-of-work protocol as the first cryptocurrency.

Key Takeaways:

  • Proof of Work is used in cryptocurrency(bitcoin) for verifying a transaction.
  • Proof-of-Work (PoW) is totally based on a decentralized consensus mechanism system. 
  • Bitcoin and other cryptocurrencies use peer-to-peer transactions with high security. 
  • Proof of work needs a large amount of energy to solve difficult computational math puzzles.

Let’s understand it more deeply

A miner needs a particular hash to successfully mine a block.

The computational problem is accomplished by establishing an “objective” for the hash. The lower the target, the smaller the set of valid hashes, and generating a smaller hash is more difficult than normal.

To arrive at this particular hash, miners need to change a small portion of the block’s header known as a “nonce”. This starts from “0” and increases after reaching every required hash.

Mining required a huge amount of hardware resources and computational power to mine a block. All the people who are in this network solve this puzzle to mine a block.

So, this concept is known as “proof of work”.

Proof of work pros and cons

Pros

Cons

  • Operating costs make it highly secure
  • The network is more open and decentralized
  • Only consensus mechanism to have been proven at scale
  • Require high energy, and computational power
  • Not good for the environment
  • Slower and less scalable than proof of stake

What is Proof of Stake (PoS)?

proof of stake

Proof of Stake is another distributed consensus mechanism-based algorithm that helps in doing transactions and adding new blocks in the blockchain. 

As we know that PoW needs too much electricity, energy, money, and computational power to successfully mine a block in the network. 

Unlike PoW, Proof of State requires less energy, electricity, money, and is more user-friendly.

Example: Ethereum, 

Important Points:

  • In proof of stake, cryptocurrency owners validate block transactions based on the number of coins a validator stakes.
  • PoS is more highly secured than a PoW. Because in this a person or group would have to own 51% of stake in cryptocurrency.
  • It is faster and more efficient than Proof of stake. 
  • In need less computational power, energy, and resources to do a transaction.

How does Proof-of-skate work?

In the proof-of-stake model, they pick cryptocurrency owners as a validator for verifying a transaction in the blockchain. 

There are two methods for picking a validator: first, Who stakes a large number of coins, and second, who owns their coins for a long time.   

Before mining starts, a validator stakes his coins, and he is not able to complete the transaction due to some reasons like computer problem, internet problem, computer shutdown, technical errors in your PC etc. , then they will lose their money as punishment.

The biggest disadvantage of the proof of stake concept is if the cryptocurrency owner holds more than 50% of the coins that can control transactions in the blockchain network. 

But if this transaction or validator turns out to be fake, they can lose their coins as punishment.

Blocks are not mined in PoS. Rather, participants with a significant stake in the system are chosen at pseudo-random to add blocks to the blockchain.

Some of these selection factors are randomized block selection, coin age-based selection, master nodes, etc.

So POS fraudsters only get incentivized for the transaction fee associated with that block. And it will increase the efficiency of transactions.

Let’s understand one more concept that is Proof of Burn. So, lets understand

Proof of stake pros and cons

Pros

Cons

  • Helps to do faster transactions and more scalable
  • Needless energy, power to do a transaction
  • Gives an economic incentive to approve valid blocks
  • Hasn’t yet been fully tested and  proven at scale
  • Can tend toward centralization

Is Proof of Stake better Than Proof of Work?

Yes, Proof of stake is better than Proof of work in term of energy, speed, and environment harmless PoS need less computational power, energy for doing transactions or adding a block in the network than PoW. PoS also do faster transactions than PoW but it is less secure than PoW. 

Let’s understand one more concept that is Proof of Burn.

So, let’s understand 

What is Proof of Burn (PoB)?

Proof of burn is another alternative consensus algorithm that is used to validate a transaction in the blockchain network. It solves the high energy problem of a POW system. 

But it is similar to the PoW system. But POB has no need for high computational power, It provides virtual currency tokens to the miners. Therefore, they are given the right to add new blocks to the blockchain network in proportion to the coins burned.

To do a transaction, miners can burn native currency or altcoin. As a reward, miners receive the native currency token in proportion to the burned coins.

For example

A virtual currency blockchain network from SlimCoin uses the POB concept to validate transactions. This network allows users to burn coins. In return they give currency tokens and the right to participate in the next transaction.. Also gives a chance to get blocks for one year.

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