Proof of Work vs Proof of Stake: a simple explanation

As part of our ongoing look at Ethereum, we’re at looking at why the network is rethinking how it verifies transactions on the blockchain.

Overview

Mining cryptocurrency is an energy intensive business. But it doesn’t have to be. Several members of the Ethereum community have been proposing a radical shift in how the currency is mined that could change the cryptocurrency, and others, forever.

Proof of Work

As we outlined in our ‘BITCOIN GUIDE’ , miners are trying to solve fiendishly difficult puzzles in order to be the first to complete a block and be rewarded with Bitcoin.

This difficult puzzle is known as Proof-of-Work. It was built into Bitcoin’s design, and replicated by other cryptocurrencies, including Ethereum.

One of the by-products of this system is it requires a lot of electricity and machines working on a problem in order to solve it.

But there is another way of mining.

Proof of Stake

Proof of Stake mining is trying to achieve the same outcome as Proof of Work: to help verify transactions on the blockchain.

However, the difference in Proof of Stake is the miner of a new block is chosen by the network — instead of the miner being the first to solve the puzzle.

This new system for choosing a miner on Ethereum has been called Casper.

How does the network choose?

It’s based on how much Ether the miner currently holds and for how long they have held it. For example:

• 💰If you hold 100 Ether and the other miners in the pool only have 50, you are more likely to be chosen.
• 📅If you have held that 100 Ether for more than a year, compared to someone who has held 100 Ether for a month, your chances of being chosen increase.

The system essentially rewards those people who have a greater stake in the ecosystem.

Miners into Forgers 👨‍🏭

One of the biggest shifts this new system would bring is that miners are no longer rewarded for creating the blocks.

Instead, they will be rewarded in transaction fees.

See more about transaction fees in our guide to ‘ETHER, GAS, ERC20’

That has led some to redefine miners as forgers.

Want to know more?

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