uBlockchain

Blockchain Tips | Coins | Trading Tips || News

Proof Of Work Vs Proof Of Stake (Pow Vs Pos): Similarities And Differences

by Leave a Comment

Proof-of-work-vs-proof-of-stake

The Proof of Work vs Proof of Stake debate has been a major source of the divide in the crypto community.

Famous blockchain such as Ethereum among others is considering the adoption of PoS over PoW.

However, these two models, called the consensus mechanism, are the current requirements for confirming transactions that take place on the blockchain without the need for a third party.

Thus, in this Proof of Work VS Proof of Stake copy, you will be learning the fundamental idea behind each model. You’ll also discover the differences that exist between the two mechanism. Lastly, this copy helps to clarify the better option in the Proof of Work Vs Proof of Stake contention.

What Is Proof Of Work?

Proof of Work commonly referred to as PoS is a protocol whose main goal is preventing cyber-attacks such as a distributed denial-of-service attack (DDoS). The purpose of the DDoS is to waste the resources of a computer system by transmitting multiple fake requests.

The Proof of work theory has been in existence even before bitcoin. But Satoshi Nakamoto employed this technique in his/her digital currency. This is to revolutionize the system by which regular transactions are established.

The PoW concept was originally announced by Cynthia Dwork and Moni Naor in 1993. However, the term “Proof of Work” was formed by Markus Jakobsson and Ari Juels in an article published in 1999.

But back to this present day, proof of work is perhaps the biggest idea behind Nakamoto’s Bitcoin whitepaper which was released in 2008. The idea is to encourage reliable and decentralized consensus.

What is Proof of stake?

Proof of Stake completely virtualizes the consensus mechanism. The overall process remains the same as Proof of Work (POW), but the way you reach your ultimate goal is quite different. In POW, miners use computer resources to solve cryptographically difficult puzzles.

While POS has validators on behalf of miners. Validators lock in parts of their cryptocurrency as a stake in the ecosystem. The validator then bets on the block they think will be added next to the chain. When such a block gets added, the validator will receive a block reward proportional to the stake.

What Is Decentralized Consensus?

A decentralized consensus system indicates that you can send and/or receive money from another individual without a third-party service.

When you use conventional methods of payment, you need to use a third party to establish your transaction (e.g. Visa, banks, Mastercard, PayPal). They have their classified register which stores all transaction history and balances of each account.

Read more on decentralized system: What is Decentralized Finance (Defi)?

With Bitcoin and some other digital currencies, everyone has a copy of their ledger (blockchain), so everyone can see the information written down directly, so they don’t have to trust a third party.

Taking it a step further, proof of work involves defining expensive computer calculations, also known as mining that must be performed to create new groups of reliable transactions (called blocks) in a distributed ledger called a blockchain.

Mining serves two purposes:

  • To ascertain the authenticity of a transaction, or prevent the so-called double-spending;
  • To develop new digital currencies by rewarding miners for completing the previous tasks.

When a transaction is established, what happens is that;

  • Transactions are wrapped together into what is known as a block;
  • Miners confirm that transactions within each block are authentic;

To do this, miners would solve a mathematical puzzle known as the Proof Of Work problem; The first miner to solve each block’s problem receives a reward. 

Validated transactions are stored in the general blockchain.

The puzzle has unique characteristic: asymmetry.

In fact, the task should be reasonably difficult on the request side, but it is easy for the network to verify. This idea is also known as the processor cost function, customer puzzle, compute puzzle, or processor pricing function.

All the miners in the network compete to first find solutions to the mathematical problems linked to the candidate blocks. This problem can only be solved by brute force, which essentially requires a large number of tries.

When the miner finally finds a suitable solution, he announces it throughout the network and receives a cryptocurrency award (reward) provided by the protocol.

The technical perspective

From a technical point of view, the mining process is a reverse hash operation. That is, determine the number (nonce) so that the block data encryption hash algorithm is below the specified threshold.

This threshold, called difficulty, determines the competitiveness of mining. The higher the computing power added to the network, the higher this parameter and the average number of calculations required to create a new block.

This method also increases the cost of creating blocks and encourages miners to improve the efficiency of their mining system and maintain a positive economic performance. This parameter is updated approximately every 14 days and new blocks are generated every 10 minutes.

Proof of work is used not only in Bitcoin blockchains but also in Ethereum and many other blockchains. Some features of the proof of work system are different because they are specially created for each blockchain.

PoW Adoption VS PoS Adoption

The most obvious starting point is the discussion from the original user of Proof of Work, the Bitcoin blockchain. Each time a transaction is sent, it takes about 10 minutes for the network to confirm it. Also, the Bitcoin blockchain can only process around 7 transactions per second. As a result, transaction fees have risen significantly since the project began in 2009.

For example, Bitcoin fees initially cost a fraction of a penny, making the network useful for transferring small amounts. It rose to $40 per transaction during its busiest period in December 2017. Although these fees have since been reduced, they are still too high to be useful as a check-in system. Most of these problems are primarily due to the limitations of the proof of work.

Ethereum, the second most popular cryptocurrency in the world, also uses Proof of Work. Interestingly, the developers made some changes to the original code so that the network can process transactions in just 16 seconds. While this is not the fastest in the industry, it is significantly faster than the 10 minutes it takes Bitcoin.

However, the scalability issues that Proof of Work caused with Bitcoin are also a problem for Ethereum. The maximum number of transactions the Ethereum blockchain can process is 15, which in turn is significantly less than what the network needs.

Although the date of the Ethereum Proof of Stake is not yet official, that number is expected to rise to thousands per second. Like Ethereum, other blockchains sometimes use a variation of Proof of Work by changing the type of algorithm that supports the transaction validation process. Other popular blockchains that have proof of work installed are Bitcoin Cash and Litecoin.

Proof of Work: How it Works

As you can imagine, thousands of people use Bitcoin, Ethereum, and other blockchains that use the Proof of Work model. Each block contains different transactions, each of which must be committed individually.

For the Bitcoin network to do this without a third party, someone has to use their computing power to solve the crypto algorithm. This is also known as proof of work. When this is done, the transaction will not only be marked as valid but will also be published on the public blockchain for public viewing.

You might be wondering why someone is buying hardware and consuming so much energy just to confirm a Bitcoin transaction. The simple answer is that people will be rewarded with additional Bitcoin (or verifying cryptocurrency proof) for their efforts.

The important thing to understand is that not everyone gets paid. Thousands of individual devices are all competing to solve the encryption algorithm first. The first person to come will get the reward. We’ll talk more about this later, but one of the main issues with Proof of Work is a fair system, as the person with the most powerful and most powerful hardware device is most likely to win at all times

In the real world, computers can infer millions of different combinations per second and require such a large amount of power. Generally speaking, the more powerful the hardware, or the more hardware devices you have, the more likely you are to solve the puzzle first. We’ll talk more about this later, but for these reasons, it’s not a fair system.

The next part of this Proof of Work VS Proof of Stake guide will explain how proof of Stake works.

How does Proof of Stake work?

The proof of stake model uses a different process to confirm transactions and reach a consensus. The system continues to use cryptographic algorithms, but the purpose of the mechanism is different. Proof of work rewards miners by solving complex equations, while in proof of stake, the individual creating the next block is based on the amount bet.

To keep things simple, stakes are based on the number of coins a person has against the particular blockchain they are trying to mine. However, technically speaking, individuals do not mine. Instead, they’re called forgers because they don’t have bulk rewards.

Most Proofs of Stake blockchains have a minimum coin requirement to start staking. This, of course, requires a significant initial investment.

Therefore, to clarify: In Proof of Work, every miner has to try to solve complex sums, and the winner is determined by who owns the most powerful and abundant hardware device. The proof of stake model randomly selects winners based on the amount wagered. The most important theory that supports the proof of stake consensus mechanism is that stakeholders want to help keep their networks safe by doing things right.

Also, If a forger attempts to hack the network or handle a malicious transaction, the counterfeiter loses his stake. This is why the model works so well. The more bets you have, the more you can win. But at the same time, if you oppose the system, you lose more.

So, now that we know how each consensus mechanism confirms and validates transactions. In the next part of this Proof of Work VS Proof of Stake copy, we look at the differences between the Proof of Stake model and the Proof of Work.

Differences between PoW and PoS.

It is believed that the Proof of Stake model is more like the Proof of Work. However, there are notable differences in the way they work. Those differences are:

  • Centralization
  • Energy consumption
  • 51% attack

#1. Centralization

In this Proof of Work VS Proof of Stake guide, it was aforementioned that the Proof of Work blockchain increases the chances of getting mining rewards for those who buy powerful hardware devices.

As a result, centralized organizations buy thousands of devices (called ASICs) that produce the highest mining power. This type of operation is called a mining pool and can pool resources to give you the best chance of resolving full encryption first.

However, only four mining pools, most of which are in China, control more than 50% of Bitcoin’s total mining power. Therefore, It is an unfair system because it means that an average person is unlikely to win any mining rewards. This is where the proof of stake is different.

This model prevents groups of people from working together to dominate the network for the sole purpose of making a profit. Instead, those who contribute to the network by freezing coins will be rewarded in proportion to the amount invested.

Energy consumption is another important point to note in the Proof of Work VS Proof of Stake contention.

#2. PoW vs PoS energy consumption

In the Proof of Work VS Proof of Stake guide, I mentioned earlier that some proof of work blockchains like Bitcoin uses a lot of energy. This is because the sum of the digits that the miner has to solve is very difficult.

According to a recent study, the total amount of electricity needed to maintain the functionality of the Bitcoin network exceeds the amount of electricity used in more than 159 countries. Not only is it bad for the environment, but it also slows down the rate at which cryptocurrencies increase their actual adoption.

Sure, you have to pay your electricity bill in fiat currency! Proof of stake, on the other hand, does not have to be settled for a very complex amount of money. In other words, the electricity bill for verifying the transaction is significantly lower.

#3. 51% Attack

The 51% attack is used to describe an unfortunate event only one group or a person gains more than 50% of total mining power. If this happened in blocking blocks such as Bitcoin, this would allow the person to modify a specific block. If that person was a criminal, they could change their gains. 

A recent 51% example of the attack occurred against the block VERGE, allowing the computer hacker to leave with 35 million XVG Coins. At the time of the attack, it was the actual value of $ 1.75 million!

When using the consensus of the proof of stake mechanism, it would not make this financial sense to try a 51% attack.

To achieve this, a bad actor should have at least 51% of the total quantity of cryptocurrency in circulation. The only way to do it is to buy the coins on the open market. If you have decided to buy a large quantity, the real money value has increased along the way. As a result, they would be much more than they could gain attack. Not only that, but when the rest of the network has realized what is happening, the bad actor would have lost all his mail!

Thus, now that you know the problems of the work tests and that the rate test resolves, the last part of my job-testing job test examines if there are any disadvantages to using the speed of the test!

Similarities between PoW and PoS.

Profiled here are some similarities between the Proof of Work and Proof of Stake models.

  • Blockchain ordering
  • Big Hands
  • Reward Distribution

#1. Blockchain Ordering

The first block of the PoW blockchain is hard-coded in software and is called the Genesis block, also known as block 0. By definition, this block does not refer to the previous block. Subsequent blocks added to the blockchain always refer to the previous block, each containing a fully updated copy of the general ledger.

Like PoW, the PoS blockchain is a mechanism made up of a series of blocks arranged in chronological order according to the transactions.

#2. Big Hands, more Money

The first concern when discussing the proof of stake and proof of work is the problem some people have about proof of stake, which helps the rich get richer. This is because the more coins you can buy, the more coins you can bet and win.

However, this is much like a PoW consensus mechanism where wealthy miners only buy thousands of ASIC devices.

#3. Reward Distribution 

Block rewards are new cryptocurrencies granted to miners by the blockchain for each block considered valid and accepted by the network. For some cryptocurrencies such as Bitcoin, the block reward will be reduced after a certain number of blocks have been found. This is done to keep the total money supply finite and deflationary. 

Similar to the PoW algorithm, the PoS block reward refers to the cryptocurrency granted by the blockchain to the user who offers a valid block. However, because block selection is made by ownership of the coin, exchanges may offer staking services that offer users the option to stake funds on their behalf in exchange for more regular payments.

Proof of work coins

Listed below are the top 10 cryptocurrency that adopts the PoW mechanism.

  • Bitcoin BTC
  • Ethereum ETH
  • Dogecoin DOGE
  • Litecoin LTC
  • Bitcoin Cash BCH
  • Ethereum Classic ETC
  • Monero XMR
  • Bitcoin SV BSV
  • Kadena KDA
  • Zcash ZEC

Proof-of-stake coins list

Here are examples of major cryptocurrencies that use Proof of Stake:

  • Cardano
  • Tezos
  • Algorand
  • NEO

Conclusion

In this Proof of Work VS Proof of Stake guide! you must have gained a good understanding of how each consensus mechanism works. Furthermore, their differences such as the chances of a 51% attack and similarities are also outlined.

Frequently Asked Questions

Is Dogecoin proof of work or proof of stake?

Dogecoin relies on energy-intensive proof-of-work (PoW) mining

Is PoS better than PoW?

PoS has security vulnerabilities while PoW is energy-expensive

Is Ethereum Proof of Work or Stake?

Just like bitcoin, Ethereum uses the proof of work mechanism.

References

Recommendations

Reader Interactions

Leave a Reply

Your email address will not be published.