Proof of Work vs. Proof of Stake

 

Every blockchain requires a consensus mechanism to validate each block that is added to the chain. These mechanisms also prevent fraud transactions by checking each block’s accuracy. Proof of Work (PoW) and Proof of Stake (PoS) are the commonly used consensus mechanisms used in the blockchain world. While PoW has been popular for a while, PoS model is relatively new, and was proposed as an alternative to the existing model. Let’s analysis each of these mechanisms and weigh their pros and cons to find the best one for your blockchain-based applications.

 

Proof of Work

The Proof-of-Work model gained its population after it has been mentioned to shield the fraudulent transactions by its creator Satoshi Nakamoto. Mr Nakamoto wrote a whitepaper on Bitcoin and since then PoW is well-known and widely used.

 

Many people refer to it as ‘mining’. It is characterized by tricky cryptographic equations, and one can mine cryptocurrencies by solving these equations. The miners would compete to solve these puzzles, the first one to solve them is rewarded with a block reward and a share of the transaction fee. After the equation is solved, a new block is added to the existing chain of blocks in the network.

 

The complexity of the equation increases as more blocks are added to the chain. To solve these equations, the miners need a lot of computational power. It leads to more usage of electricity and in turn an increased cost overall.

 

Although it is costly to attack the network adopted to this mechanism, it is not shielded to 51% attack. 51% attack indicates that the network can be attacked by a group of miners holding 51% of the total computational power in that network. After attacking, they can use it for fraudulent transactions.

 

Let us summarize the pros and cons of this consensus mechanism:

 

Pros of Proof of Work model:

  • Miners are rewarded with a block reward and a share of the transaction fee.
  • It leads to more decentralized networks.
  • The network gets difficult and costly to attack.

 

Cons of Proof of Work model:

  • It is not insulated to 51% attack.
  • A lot of computational power is wasted once the equations are solved.
  • An excessive amount of electricity is consumed, which could impact the environment in the near future.

 

Proof of Stake

This mechanism was introduced as an alternative in order to reduce the excessive computational power usage in the PoW model. PoS mechanism is also designed to verify block’s accuracy in the network, add new block, and validate the transactions. It works slightly differently when compared with the popular PoW model.

 

The PoS algorithm allows the validator to validate a transaction based on the ‘stake’ he/she holds in that network. The stakeholder can validate the transaction based on many shares they own and put on ‘stake’. For instance, a validator with 6% of ‘stake’ in the network would be able to validate only 6% of the transaction carried out in that network. It does not need validators to solve any complex equations, thus saving a lot of computational power.

 

Let us summarize the pros and cons of this consensus mechanism:

 

Pros of Proof of Stake model:

  • Theoretically, insulated to the 51% attack.
  • Better rewards to the validators.
  • It does not require a lot of computational power, thus is more energy-efficient.

Cons of Proof of Stake model

  • It is less secure as compared to PoW.
  • It is more susceptible to low-cost attacks
  • It leads to a less decentralized network.

 

 

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