Proof of Work vs Proof of Stake: A Perfect Guide for Beginners

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Mining has always been a well-known concept for blockchain enthusiasts. The main purpose of mining is to record and validate transactions. It is based on Proof of Work (PoW) algorithm which is extremely resource-intensive and demanding.

To bring down the energy consumption and to simplify the process, people are moving towards another, more developed concept of Proof of Stake (PoS). The latter comes with its own benefits over the former.

Before moving forward with Proof of Work vs Proof of Stake, let us start with the basic definitions.

Definitions

Proof of Work is a protocol that requires some work to deter a cyber-attack or any malicious use of computing power, such as sending spam emails or launching denial of service attacks.

Proof of Stake is a protocol that states a person mine or validates block transactions based on the number of coins he or she holds. This means the more coins a miner owns, more mining power he will have.

Proof of Work vs Proof of Stake (PoW vs PoS)

Energy and Resources

This is probably the most obvious benefit of Proof of Stake. As you know, PoW uses a massive amount of computing power and electricity to operate. The mining computers and devices consume millions of units of energy every single day. According to Bitcoin Energy Consumption Index, the annual electricity consumption for Bitcoin mining is estimated around 73.12 TWh.

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Source: Bitcoinenergyconsumption.com

Proof of Stake comparatively uses less amount of electricity. It enables the valida tors to mint more coins without worrying about huge electricity bills. Additionally, PoS does not require high computing power to complete the validation process. A simple computer can be used instead of a supercomputer in case of PoW.

Price Volatility

Miners constantly sell their cryptocurrencies for fiat currency mostly to pay their heavy electricity bills which causes downward pressure on their prices. The constant sale of cryptos shows its poor demand, which in turn pushes the price down. The main culprit is the PoW system which fails to create an incentive for all the miners. PoS, on the other hand, can bring price stability as it offers more incentive to keep the coins than to sell.

Decentralization

Blockchain has provided the world with a decentralized form of currency, which is the reason it has gained immense popularity. However, entities like China invested millions of dollars in purchasing supercomputers with a sole purpose of mining Bitcoin and other cryptocurrencies. Such a huge mining setup mined a huge chunk making the Bitcoin centralized.

PoS could minimize that possibility as if validators hold the coins for a longer time, the more profit they would get. It will also prevent China or any other entity planning for a buy-out.

Vulnerability

You might have heard about the 51% Attack on the blockchain. The cost of attacking a mature PoS system is much higher than the cost of attack in PoW system. In PoW an attacker would need to acquire more than 50% of the computational power in the blockchain network. However, in PoS, an attacker would need to acquire more than 50% of the total currency within that blockchain network.

In simple terms, for Proof of Stake, you would have to own a huge amount of coins to be able to land an impact into the ledger, which would be highly expensive. Why would anybody compromise something that he has spent a lot of?

Conclusion

There could be a lot of arguments in the debate of Proof of Work vs Proof of Stake. Although there are a lot of cons with the latter concept, we believe that with the much-awaited Casper update, PoS would be the most used algorithm for validating coins and PoW will be fade out.

Original Blog Post: https://akeo.tech/blog/blockchain-and-dlt/proof-of-work-vs-proof-of-stake-a-perfect-guide-for-beginners-2/