Proof of work vs proof of stake

There are hundreds or even thousands of cryptocurrencies available in the market today. It is important to understand that there are differences between these cryptocurrencies. Obviously, that would be their ideologies, teams, motives behind development, and applications.

But, today we will be considering the simple technical differences deciding the currency’s future, inflation, and investor rewards. It is the difference between ‘Proof of Work (PoW)’ and ‘Proof of Stake (PoS)’. Before we begin explaining their differences, it is important to know that all cryptocurrencies have their own blockchain to store and record transactions.

What is the Proof of work?

Firstly, we should know the basic definitions.

Proof of work is a protocol that has the main goal of deterring cyber-attacks such as a distributed denial-of-service attack (DDoS) which has the purpose of exhausting the resources of a computer system by sending multiple fake requests.” – Blockgeeks

The concept of Proof of work was there even before bitcoin was conceived, but Satoshi Nakamoto, the founder of bitcoin (whose identity we still have no idea about) used this method for his/her digital currency that forever changed the way traditional transactions are made.

Actually, the idea of PoW was announced by Cynthia Dwork and Moni Naor originally in 1993, but the term “proof of work” was coined by Markus Jakobsson and Ari Juels in their published document in 1999.

Today, Proof of work is probably the backbone of Nakamoto’s Bitcoin scheme – released back in 2008 – allowing consensus to be trustless and distributive.

What is a proof of stake?

Proof of stake is another way to verify transactions and achieving distributed consensus.

It is still an algorithm, in one way or another, and its goal is similar to that of the proof of work, but its process that leads the goal is distinctive to its former counterpart.

Back in 2011, The idea of Proof of stake was first suggested on the bitcointalk forum. But only until 2012 that it was put into use by Peercoin, alongside with ShadowCash, BlackCoin, Nxt, Nav Coin, NuBits, and Quora.

In PoW, the algorithm rewards miners for solving mathematical problems in order to validate transactions and creating new blocks.  In proof of stake, on the other hand, the creator of a new block is selected in a deterministically, depending on its wealth, or stake, in other words.

Proof-of-stake doesn’t offer block rewards!

All the digital currencies are created in the beginning beforehand, and their number stays consistent, meaning that in the PoS system there is no block reward. The miners will, instead, take the fees from transactions

For this reasons, participants in mining using PoS are called forgers instead of miners.

So… Is proof of stake safer than proof of work?

This question concerned many experts, and people in the community are also sceptical about it.

A Proof-of-Work system will get rid of bad actors thanks to technological and economic disincentives.

In fact, it is very expensive to program an attack to a PoW network, and it would cost you more money to steal things than the actual boons that you will collect from that steal.

Instead, the underlying PoS algorithm must be as bulletproof as possible because, without especially penalties, a proof of stake-based network could be cheaper to attack.

Conclusion

Thanks to a PoS system validators do not have to use their computing power because the only factors that influence their chances are the total number of their own coins and current complexity of the network.

So this possible future switch from PoW to PoS may provide the following benefits:

  1. Energy savings;
  2. A safer network as attacks become more expensive: if a hacker would like to buy 51% of the total number of coins, the market reacts by fast price appreciation.

 

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