What makes Proof of Work different from Proof of Stake?
Blockchain technology works on a consensus algorithm. It means that in a network of public blockchain different members or nodes reach a unanimous decision to agree on the inclusion of a block or verify a transaction independent of each other as they do not know or trust each other according to the Blockchain Council. This consensus is reached through proof of work, also known as mining or hashing, in Bitcoin and proof of stake in Ethereum. But what makes PoW different from PoS?
Proof of Work
As an idea, it was introduced by Cynthia Dwork and Moni Naor in 1993. But ‘Proof of Work’ as a term was introduced by Markus Jakobsson and Ari Juels in 1999. It is a consensus protocol to verify the veracity of a transaction without the intervention of a third party.
This is done by solving complex mathematical equations and whoever solves them first gets a reward in bitcoins. This is known as mining. With proof of work, miners compete against each other to add a new block to a blockchain. Proof of work is foolproof and impossible to breach or hack. It also has the following advantages:
- PoW algorithm reduces the attack of hackers by 51%.
- It is based on the Hashcash PoW algorithm that makes it impossible for a single miner to make changes to the original blockchain.
- The miners propose a block and provide their proof of work as evidence of their veracity.
- It becomes easy for every node to verify a transaction for trustworthiness.
- PoW is designed in such a way by Nakamoto in Bitcoin blockchain that it restricts the introduction of new blocks. A new block can only be introduced every ten minutes. It is estimated that the last bitcoin will be mined by 2140.
- The system frees transactions from third-party verification by establishing a trustless and transparent network
Proof of Stake
Proof of Stake works on an entirely different approach. Instead of miners, people involved in reaching consensus through proof of stake are called validators. They put their share of cryptocurrency on a block that they believe is genuine.
When the block on which they place their bet gets added, they are rewarded with Ether according to the proportion of their stake. Instead of a miner solving puzzles to get the block added through computers, the proof of stake algorithm decides on the inclusion of a block on the basis of the stake that has been put on the block. Here are some added advantages of proof of stake.
- The probability of adding a new block increase if a person has staked a large amount of Ether on it.
- The rest of the validators do not receive a block reward. They are eligible to collect a network or transaction fee as their reward and their values can be determined from Uniswap charting software which is available in the public domain.
- The Proof of stake consensus algorithm was implemented for the first time on Peercoin.
- It handles monopoly and uses a lesser amount of power as against proof of work that consumes a large amount of energy.
Why does Ethereum want to switch to Proof of Stake?
Vitalik Buterin, founder of Ethereum is planning to introduce proof of stake in Ethereum blockchain. He wants this transition to be completed by a hard fork in the Ethereum network.
Miners use a very large amount of every when they solve complex cryptographical mathematical problems through high-end supercomputers. The cost of energy used is paid in fiat currency that makes mining very expensive eclipsing the overall benefit of cryptocurrency.
Experts suggest that Bitcoin mining consumes energy in a year that is enough to power Denmark for a whole year. Developers and miners want to switch to the PoS algorithm as it consumes a lot less energy than PoW.
The difference between PoW and PoS
Other than energy consumption, there are many differences in both the consensus algorithms that are given as follows:
- Block is mined on the basis of computational work done and block validation is done after determining the share of the stake being put on a block.
- Miners have rewarded bitcoin when they solve a puzzle to add a new block. Validators become eligible for a transaction fee when a block is added.
- Miners solve puzzles to verify transactions, whereas, in PoS, the block to be added is determined by an algorithm.
- Hackers need to control 51% of computers to add a fake block in PoW and they had to stake 51% of cryptocurrency as stakes to do the same.
- Proof of work consumes a large amount of energy and prove to be more costly, but their algorithm holds more veracity. In Proof of Stake, energy consumption is less and they are less proven too.
Each consensus algorithm has its pros and cons. It depends on the network to choose and implement the algorithm according to their needs.
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