Proof of Work vs Proof of Stake — The Great Debacle
Ethereum will soon implement the Proof of Stake (PoS) mining method. So what is PoS all about and how does it differ from Proof of Work (PoW)?
The main idea behind Blockchain is reaching a consensus in a decentralized manner, meaning the data is chronologically ordered without a trusted central authority approving the transactions. As the first blockchain, Bitcoin uses a consensus mechanism called “Proof of Work”, which presented the idea of 1 CPU 1 vote. Since then, a few more consensus algorithms have been proposed and implemented in different Blockchains. Lately, one mechanism attracted a lot of attention due to the announcement Ethereum is working on implementing it. This mechanism is called Proof of Stake, which offers a faster, more economically secure and extremely energy efficient way to reach consensus.
I would like to make a quick comparison of both methods and share a bit explanation on how they work, and what are the advantages of one over the other
As mentioned before, the idea of Proof of Work is to give “voting rights” of one vote per computer. This method works as following: All computers in the network try to find a solution for a cryptographic puzzle, this solution can be found only by guessing numbers until finding a correct answer. When the answer is found, the one who solved it creates a new block which contains a bunch of transactions, and as a reward it receives a prize in the form of new Bitcoins (along with transaction fees). This works like some kind of a lottery, where you try to guess numbers to win a prize. But just as in a lottery, each form you fill (a number you guess) costs you money, here it comes in the form of computational power which uses electricity and therefore costs money.
Trending Cryptocurrency Hub Articles:
1. With Simple Token, Starbucks can finally create the digital currency it really wants.
Proof of Stake is a mechanism which aims to change the voting rights into “one coin, one vote”. The flow of Proof of Stake is simpler, you first need to lock up the coins (make them non-transferable) you would like to stake. In return, you receive voting rights relatively to your stake in relation to the entire stacked coins. With these voting rights, you can vote on which block should be added to the Blockchain. In case someone tries to vote maliciously (like voting for an invalid block), he gets punished by losing coins from his stake.
The main benefits of the Proof of Stake algorithm are: It is faster, as you can skip the step of working to receive the voting right and just need to make the vote, it requires almost no electricity which makes it better for the environment, and it has stronger economic barriers and incentive to keep the participants honest. The first economic barrier is it more expensive to buy 51% of the coins compared of buying 51% of the computation power, this is because when you buy a large number of coins it makes its price grow so it gets more expensive as you try to buy more coins. Another important protection is in Proof of Work you can infinitely try to cheat the system until you succeed, in Proof of Stake, if you fail in attacking the system you lose your stake which makes it harder and much more expensive to try again. The third consideration is even if you successfully were able to cheat the system in a 51% attack,it will make the system worthless (since it’s not secure) and leave you with coins worth nothing, compared to Proof of Work where you still have computers you can use or sell.
The advantage of Proof of Work is it was the first one and the only one who proved itself as a securing mechanism (as Bitcoin’s PoW was never hacked). While Proof of Stake is better, in theory, it still lacks a real massive field test. Along with that, there are a few more vulnerabilities which Proof of Stake is still debated on compared to Proof of Work. In a proof of work system, there is an external factor, the amount of computational work involved to forge a new block. With proof of stake, there is nothing physical “anchoring” the blockchain in reality, thus, one can intuitively see PoS systems as more prone to attacks.
In conclusion, I think Proof of Stake is going to be the next mechanism and probably replace Proof of Work in the majority of Blockchain implementations. If you have some thought to add please feel free to leave a comment. If you liked this post please like and share :)
Explore Cryptonomy and Follow us on Twitter and Facebook.
This guest article was written by Ben Kaufman, founder of BitCampus.io
Join tens of thousands of other crypto-enthusiasts on Cryptonomy for iOS or Android
