PROOF OF WORK VS. PROOF OF STAKE
Let’s clarify a pair of concepts
If you decide to dig a bit deeper in the crypto dimension, sooner or later, and more and more frequently, you will bump into a pair of phrases or their abbreviations: Proof of Work and Proof of Stake, or: PoW and PoS.
There are great descriptions, explanations available but the problem with most of them is that they are too long or too technical. We are trying to break it down as simply as possible:
PoW and PoS are consensus methods. Miners of a specific blockchain have to agree on which transactions or blocks are valid or invalid, that is to say, which ones will be added to the blockchain and which ones will be rejected.
Proof of Work, or PoW, is one of the distributed consensus methods, used to reach an agreement in the network.
In the case of Bitcoin, for example, miners are forced to solve “extremely complex and computationally difficult mathematical problems in order to add blocks onto the blockchains. /…/ Proof of Work can be considered as a lengthy endeavour that eventually produces a single piece of data that fits within the Bitcoin protocol.”, explains bitcoinexchangeguide.com. “This process is time consuming and extremely energy intensive.
The result of this process is called a “nonce”. To get a correct “nonce” takes millions of repetitions of the calculation process. The first miner who comes up with the correct “nonce” gets a reward. That’s how it works.
“This process requires a massive amount of processing power, hardware sources, and energy in the form of electricity, which thus proves that a large amount of work has been performed before mining any individual block. This is why this process is referred to a “Proof of Work” – adds bitcoinexchangeguide.com.
What Is Proof Of Stake (PoS)?
It is an alternative method to reaching consensus. In the PoS system, what matters is not who is the first to come up with the correct “nonce”. What matters is the number of digital currency tokens that users hold. The larger the number of tokens, or, the “stake”, the higher the chance that a user (who is not called a “miner” in this system, they are called “forgers”) is selected, on a pseudo-random basis, for forging and adding blocks to the blockchain.
So, comparing the two systems, practically in the PoW protocol, the miners who have the highest chance to add a new block to the system are the ones that have the highest computer capacity.
While in the PoS system, those forgers have the best chance to generate a new block, that own the highest number of tokens of the given digital coin.
This is the main difference between the two protocols. It is not guaranteed that a brief comparison like this gets through to every reader but we hope we have managed to highlight the fundamental differences between the two systems.