PoW vs PoS — A Breakdown Of Blockchain Consensus Mechanisms

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Coinmonks

6 min readApr 7, 2022

A consensus mechanism is a common phrase thrown around in the crypto world. You’ve likely heard it alongside Proof of Work or Proof of Stake. However, most people aren’t aware of the many other types of consensus mechanisms. Is this a game-changer for new protocols?

In this article, we’ll take a look at what a consensus mechanism is, how it applies to crypto, and of course, the various different types. Let’s dive in.

Consensus Mechanisms

Consensus refers to a general agreement. They are reached among groups on a daily basis, sometimes for menial decisions and others with long-lasting impacts. This relation of consensus and agreements carries over into crypto. However, there’s a bit more depth to the explanation.

In crypto, consensus mechanisms are fault-tolerant algorithms used to achieve a general agreement on a single data point and state of the network. This allows distributed systems (computers) to work together, stay secure, and avoid manipulation.

Consensus algorithms on the blockchain are designed to be sophisticated. You wouldn’t want just anyone coming in and manipulating the outcome, right?

This brings us to the topic of how consensus mechanisms are categorized. First, let’s discuss the two dominant players in use: Proof of Work and Proof of Stake. Then we’ll move on to some others you may or may not have heard about, such as Proof of Authority, Proof of Capacity, Proof of Elapsed Time, and Proof of Burn.

Proof of Work

In today’s world, the Proof of Work model is commonly associated with Bitcoin. However, the concept was first brought to light in 1993 by Cynthia Dwork and Moni Naor. Back then, it was initially envisioned as a way to combat email spam. This was done by requiring some work from a service requester and processing time by a computer.

Bitcoin applies a simplistic version of the Proof of Work protocol. Network participants or “miners” compete to solve a complex and arbitrary puzzle — kind of like guessing a random number. Once the miner cracks the code, they get to add a block of Bitcoin transactions to the chain and are rewarded with a certain amount of BTC. This cycle repeats itself as participants prove that the work completed allows them to add new transactions to the blockchain.

Now, that’s a watered-down version. If you’re already Googling how to become a Bitcoin miner, you may want to think again. BTC mining requires an insane amount of computational power, energy consumption, and processing time. And when considering the environmental impact, you can see how a PoW comes with some negative connotations. This also is a reason why other networks have chosen to adopt different consensus mechanisms, such as Proof of Stake.

Proof of Stake

Unlike its counterpart, Proof of Stake emerged as a low-cost and energy-saving protocol. The idea arose in 2011 when it was proposed as a solution for processing Bitcoin transactions. While it didn’t stick for Bitcoin, numerous cryptocurrencies have since adopted a Proof of Stake consensus algorithm. Most notably are Ethereum 2.0, Cardano, Solana, and Polygon.

In a Proof of Stake protocol, owners of a cryptocurrency may “stake” their coins. This can result in being selected to validate a new block of transactions. Being chosen for this task does require some technical backing, but you get the gist. The network participants who are responsible for verifying the transactions in a PoS consensus mechanism are known as “validators”.

Validators can (and should be) located all around the globe, ensuring decentralization. The specific amount an owner must “stake” varies by coin, but coins that are staked remain locked from trading. You can find most coin-specific staking requirements located on their website.

Of course, no consensus mechanism can be perfect.

One of the biggest concerns with a PoS protocol is the 51% attack. This occurs if and when a person (or group) gains majority control, or 51%, of a blockchain’s hashing power. Obtaining this level of control is costly and would certainly impact the value of the cryptocurrencies held, but nevertheless, not impossible.

Proof of Authority

This next consensus mechanism boosts itself as an efficient alternative for processing transactions, without relying on computing power or money for staking. This is Proof of Authority.

The concept was first proposed in 2017 by Ethereum co-founder and creator of Polkadot, Gavin Wood. With PoA, network participants stake their actual identities to produce blocks of transactions. The algorithm leverages putting your reputation on the line, which is the core incentive to act honestly.

While the methodology enables faster transactions, PoA blockchains tend to lack decentralization. Mainly because participants must prove their identity to a central source of authority or entity. For this reason, PoA algorithms could be seen as a more viable solution for larger enterprises with logistical concerns.

Proof of Capacity

One of the lesser popular consensus algorithms is Proof of Capacity, or as some call it — Proof of Space. This allows contributing nodes to use memory space on their hard drive to mine cryptocurrency on the network and produce blocks for the blockchain. The more available hard disk space equates to more power for maintaining the public ledger.

The research on PoC first appeared in a paper by Stefan Dziembowski in 2015. While use-cases of the algorithm are less prevalent than others, variants of the notion can be found in Signum (formerly known as Burstcoin), Chia, and Arweave.

The downside of a storage-based network is the likelihood of centralization. This is because institutions or wealthy individuals can use their buying power for more storage space and ultimately dominate the network.

Proof of Elapsed Time

A Proof of Elapsed Time algorithm mirrors similar qualities of PoW and PoA protocols. It’s used on a permissioned blockchain to decide mining rights and the addition of new blocks. Like PoA, participants must prove their identity in order to join the network. However, PoET also incorporates the concept of a time-lottery-based protocol.

Intel Corporation released the idea in early 2016. It leverages the notion of time in order to achieve a fair and equal consensus on the network. A PoET algorithm entails two parts. First, nodes must randomly select a waiting time or “timer object”. Second, the participant who completes the chosen waiting period first is the “winner” and becomes eligible to add a new block to the network.

Given that it is a permissioned and closed network, a PoET protocol raises concerns regarding centralization. The mechanism is also dependent on tools by Intel, raising more apprehensions about compatibility. Nevertheless, PoET still provides solid benefits when it comes to fairness and efficiency.

Proof of Burn

The last consensus mechanism on our list is Proof of Burn. With a PoB model, network participants “burn” coins by sending them to inoperable addresses. Burning coins permanently removes them from circulation. This practice is often used for inflation, but PoB blockchains use it to validate transactions and earn mining rewards.

The notion of burning crypto was first proposed by Iain Stewart in 2012. The protocol comes with some notable upsides, including scarcity, low-energy consumption, and encourages long-term project involvement.

On the reverse side, some argue that burning coins isn’t eco-friendly and is seen as a waste of resources. The algorithm also isn’t proven to work on a larger scale yet and requires more testing to ensure security.

The list goes on and on for types of consensus mechanisms leveraged in crypto. As things continue to evolve and new initiatives arise, we can likely count on seeing many new protocols in the future. Know of a consensus mechanism that didn’t make this list? Share below in the comments.

Until next time — Crypto Blondie.

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