Proof-Of-Work vs. Proof-Of-Stake: Understanding the Core Differences

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The cryptocurrency industry uses two main types of consensus mechanism to power decentralized peer-to-peer payment networks. They are proof-of-work (PoW) and proof-of-stake (PoS).

PoW and PoS are at the heart of blockchain functionality. Each has its own unique approach to validating transactions, coordinating between decentralized participants, and securing assets on the blockchain.

In this article, we compare the proof-of-work vs. proof-of-stake consensus mechanisms, analyze their pros and cons, and list the top cryptocurrencies in each category.

Key Takeaways

  • Proof-of-work is a cryptographic technique used by Bitcoin to validate transactions and attain consensus among a decentralized community of Bitcoin miners.
  • In a PoS blockchain, miners are replaced by validators.
  • PoW’s high energy usage has been widely criticized by lawmakers and environmentalists around the world.
  • Ethereum’s switch from PoW to PoS resulted in a reduction in energy usage by 99.95%.
  • PoW is considered the most secure consensus mechanism in the crypto industry.

What Is Proof-Of-Work?

Proof-of-work is a cryptographic technique used by Bitcoin (BTC) to validate transactions and attain consensus among a decentralized community of Bitcoin miners.

What Is Proof-Of-Work?

To understand proof-of-work, we need to understand how Bitcoin functions.

Bitcoin is operated by a decentralized peer-to-peer network of miners. Every 10 minutes, miners come together to create new blocks to add to the Bitcoin chain. These blocks are made by grouping transactions together.

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Each valid block is represented by a timestamp. The hash of a timestamp always includes the timestamp of the previous block. This interconnection helps create a chain that reinforces itself with each new block.

When a new block is being created, Bitcoin miners compete with each other to solve a complex mathematical puzzle by expending computational energy (work). The first one to solve the PoW puzzle gets the chance to add the latest block to the Bitcoin blockchain.

When the PoW puzzle is solved, the newly proposed block is broadcast to the entire network. Other miners will accept this new block only if all transactions in it are valid and have not already been spent.

According to the Bitcoin whitepaper, PoW solves the problem of “determining representation in majority decision-making.”

“Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it. If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes,” said the Bitcoin whitepaper.

Proof-Of-Work Flow

What Is Proof-of-Stake?

Proof-of-stake is a consensus mechanism popularized by crypto networks such as Ethereum (ETH) and Cardano (ADA).

Just like PoW, PoS is designed to enable decentralized network participants of a blockchain to agree on the state of the chain.

What Is Proof-of-Stake?However, PoS differs from PoW in its approach.

In a PoS blockchain, miners are replaced by validators. Validators do not have to expend computational energy to solve complex puzzles. Instead, each validator is required to deposit – stake – a certain amount of crypto tokens in a smart contract.

The deposit acts as collateral and ensures that validators carry out their duties in an honest manner.

Validators are randomly selected to create new blocks. The newly proposed block is broadcast to the network. Other validators are responsible for checking the validity of the proposed blocks and attesting in favor of the proposed block.

A block is finalized when it attains votes representing at least two-thirds of the total staked cryptocurrencies.

Proof-Of-Stake Flow

Advantages & Disadvantages of Proof-Of-Work

Let’s go through the pros and cons of proof-of-work consensus mechanism:

Pros

  • Tried and tested
  • Proven security
  • More decentralized

Cons

  • Power-hungry
  • Bulky equipment
  • Noise pollution
  • High entry barrier

Advantages of Proof-Of-Work

  • Tried & Tested: PoW is the oldest consensus mechanism used in cryptocurrencies. Bitcoin has operated as a PoW blockchain for nearly 15 years.
  • Proven Security: PoW is considered the most secure consensus mechanism in the crypto world. Bitcoin is a living proof of this claim. The Bitcoin blockchain has never been hacked. According to a February 2024 research report, it was estimated to cost over $20 billion to conduct a 51% attack on Bitcoin for one hour using the Bitmain S9 mining rigs, which was one of the most popular mining rigs at the time of writing.
  • Decentralization: Experts believe that established PoW crypto networks can become more decentralized than PoS cryptocurrencies. PoW mining requires enormous amounts of computing power and electricity. The high investment costs involved prevent centralizing forces from manipulating a large proof-of-work-based blockchain like Bitcoin.

Disadvantages of Proof-Of-Work

  1. Energy Usage: PoW’s high energy usage has been widely criticized by lawmakers and environmentalists around the world. According to the Cambridge Centre for Alternative Finance, Bitcoin’s annualized energy consumption was more than the annual energy consumption of several nations, including Egypt, Malaysia, and Poland.
  2. Bulky Equipment: Bitcoin mining rigs are bulky and need to be stored and maintained in large data centers.
  3. Noise Pollution: Large-scale Bitcoin mining operations are said to cause noise pollution in the area where they operate. According to Bitcoin Magazine, a single Bitcoin mining rig produces between 70 and 90 decibels (dB) of sound.
  4. High Entry Barrier: The highly competitive nature of the Bitcoin mining industry has increased the barrier to entry due to high investment costs and operating expenses. It is no longer feasible to mine Bitcoin using CPU chips. Most miners use specialized ASIC mining rigs.

Advantages & Disadvantages of Proof-Of-Stake

In this section, we study the pros and cons of proof-of-stake consensus mechanism:

Pros

  • Low energy consumption
  • Low entry barrier
  • Scalability

Cons

  • Less secure than PoW
  • Less fair
  • Less proven system
  • Slashing

Advantages of Proof-Of-Stake

  1. Low Energy Consumption: PoS blockchains do not consume high energy, as seen in PoW blockchains. According to the Ethereum Foundation, Ethereum’s switch from PoW to PoS resulted in a reduction of energy usage by 99.95%.
  2. Low Entry Barrier: Validators can stake on PoS blockchains from their laptops. Specialized hardware is not required. Token holders can also participate in staking by simply delegating their tokens to validators.
  3. Scalability: PoS blockchains are more scalable than PoW blockchains, as validators are not required to solve complex puzzles when validating the chain. The modern architecture of PoS chains allows added functionalities for higher throughput and cheaper fees.

Disadvantages of Proof-Of-Stake

  1. Less Secure Than PoW: Critics of the PoS consensus mechanism believe that the low barrier to entry to become a PoS validator increases the risk of centralized forces and bad actors gaining control of the network.
  2. Less Fair: PoS chains give greater voting power to validators with higher numbers of staked cryptocurrencies. Proposals to make changes to a blockchain protocol is crucial to its ecosystem.
  3. Less Proven System: PoS is newer than PoW, so it is less proven and battle-tested against unforeseen attacks.
  4. Slashing: Validators who staked cryptos on PoS chains risk losing their deposits to slashing.

Proof-Of-Work vs. Proof-Of-Stake: Side-By-Side Comparison

Below is a detailed PoW vs. PoS comparison table that will help you better understand the differences between the two consensus mechanisms.

Feature PoW PoS
Operator Miners are responsible for creating new blocks in a PoW blockchain. Validators are responsible for creating new blocks in a PoW blockchain.
Cost Miners need specialized mining hardware, cooling systems, and ample space to establish a competitive mining operation. Validators need to stake a certain amount of crypto before validating PoS blockchains.
Security PoW is considered the most secure consensus mechanism in the crypto industry. PoS chains are less battle-tested against unknown attacks.
Energy consumption PoW systems consume enormous amounts of electricity. PoS is said to consume about 99% less energy than PoW.
Specialized equipment The highly competitive PoW mining industry requires investment in expensive specialized ASIC mining rigs. PoS validators can conduct operations from their laptops.
Scalability PoW blockchains are considered less scalable than PoS blockchains. PoS blockchains are highly scalable, allowing for faster transaction times and higher throughput than PoW.
Economic penalties PoW chains do not require economic penalties where miners expend electricity to participate. PoS chains have economic penalties such as slashing to ensure honest validator behavior.
51% attack To conduct a 51% attack on a PoW blockchain, the attacker must hold 51% of a network’s computational power. To conduct a 51% attack on a PoS blockchain, the attacker must hold 51% of a network’s staked cryptocurrencies.

Examples of PoW and PoS Blockchains

Let’s compare the top PoS vs. PoW blockchains in the world. Find below the top five PoS and PoW cryptocurrencies based on their market cap, as of June 24, 2024.

Top 5 PoW Cryptocurrencies

PoW Cryptocurrencies Market Cap Mainnet Launch  
Bitcoin (BTC) $1.24 trillion 2008
Dogecoin (DOGE) $17.26 billion 2013
Bitcoin Cash (BCH) $7.33 billion 2017
Litecoin (LTC) $5.35 billion 2009
Kaspa (KAS) $3.58 billion 2022

Top 5 PoS Cryptocurrencies

PoS Cryptocurrencies Market Cap Mainnet Launch  
Ethereum (ETH) $414.26 billion 2015
Solana (SOL) $58.3 billion 2020
Toncoin (TON) $17.87 billion 2021
Cardano (ADA) $13.47 billion 2017
Polygon (MATIC) $5.49 billion 2020

Proof of Stake or Proof of Work: Which Is Better?

There is no straightforward answer to this question. PoW and PoS systems have their unique advantages, disadvantages, and market narratives.

Take Bitcoin and Ethereum, for example. Bitcoin is considered the most secure and decentralized cryptocurrency in the world. This PoW blockchain is not as fast or feature-packed as modern PoS chains, but its predictable inflation rate and store-of-value properties have made it the most popular crypto investment.

Meanwhile, Ethereum is marketed as the decentralized app-store of the world. Ethereum’s proof-of-stake transition has allowed the blockchain to achieve higher scalability than its PoW counterparts.

Most investors tend to hold both PoW and PoS cryptocurrencies, such as BTC and ETH, in their portfolios as they offer unique value propositions.

The Bottom Line

PoW and PoS often reflect the broader philosophical and practical considerations within the cryptocurrency community.

PoW remains a stalwart for security-conscious networks like Bitcoin, whereas PoS offers promising solutions to scalability and environmental challenges.

FAQs

Which is better, proof-of-work or proof-of-stake?

What is the difference between proof-of-work and proof-of-stake?

Is Bitcoin a proof-of-work network?

Is Ethereum proof-of-work or stake?

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Mensholong Lepcha
Crypto & Blockchain Writer
Mensholong Lepcha
Crypto & Blockchain Writer

Mensholong is an experienced crypto and blockchain journalist, now a full-time writer at Techopedia. He has previously contributed news coverage and in-depth market analysis to Capital.com, StockTwits, XBO, and other publications. He started his writing career at Reuters in 2017, covering global equity markets. In his free time, Mensholong loves watching football, finding new music, and buying BTC and ETH for his crypto portfolio.