Proof of work and proof of stake are two different phenomena applied in the cryptocurrency world. Cryptocurrency is the digital money-making area where a digital form of money exists where there exists no mediator. The cryptocurrency has been in existence since 2009. BITCOIN is the first such cryptocurrency to exist in this virtual monetary world.
Cryptocurrency mining demands a lot of computing power, which happens because of the proof of the work algorithm. The first such application of proof of work was seen in 1993 to eliminate the junk emails, but it was called proof of work in the year 1997. It was left unused until the cryptocurrency took birth. It was used in the mining of Bitcoin through the consensus mechanism to secure its blockchain. In proof of work, people worldwide, with the help of their computers and other equipment, solve puzzles that are way too complex. The one who solves the puzzle earlier than the other gets the miner reward. The people with better and advanced types of equipment get better miner rewards. For such mining, people also prefer centralized mining pools by building larger platforms. Through making larger pools, a combined hashing power is generated that is more powerful. The rewards accrued are evenly distributed amongst all. The formation of blocks depends upon the hash rate; thus, the higher the hash rate, the higher the mining reward you get. According to specific reports of Bitcoins, energy consumption is more than many countries’ annual energy consumption. If required, you can refer to the information on this website bitcoinxapp.com to better understand it.
If we sum up, it is pretty visible that in proof of work, miners have to use a tremendous amount of electricity to mine a coin, and if it is done on the larger platform, then the consumption is three times more which makes mining centralized.
Let’s Take a Look at Proof-of-Stake
In 2011 a new technique called proof of stake was proposed. Here coins are not mined but are instead forged or minted. Some nodes are chosen randomly who then becomes the validator for the block transactions taking place. These validators are competing against each other to fit in the race. To become a validator, the node needs to deposit as much as he wants to add to the network as a stake amount. The more he adds, the more he has chances of becoming a validator. The amount added can be called a security deposit.
A selected node will check all the transactions inside a block if it is valid, and the selected block will then be added to the blockchain. The transaction fee is given as a reward to the node. The loyalty and trust of the nodes are kept intact with the amount that they have deposited in the network as a stake. Otherwise, they would lose out more money, be it the rewards or the stake money in case of fraudulent blocks.
A Brief Difference between the Two
- POW has miners, and POS has validators.
- POW has more centralized mining than POS.
- POW consumes a lot more energy than POS.
- In POW coins are mined, and in POS, they are forged or minted.
- POW is comparatively more expensive than POS.
The above-written article is related to the two phenomena used on cryptocurrencies. One is proof-of-work, and the other is proof-of-stake. These two ideas are applied to mine and mint new coins through block formation and blockchain technology. I hope the article would prove beneficial for your future investment keeping in mind these two working phenomena.