Proof of stake vs proof of work: What you need to know

Proof of Stake vs Proof of Work

The staking process involves significantly less energy consumption than the mining process. Plus, staking allows far more nodes to participate in the creation of new blocks, strengthening its consensus governance in a more decentralized manner. Pure proof-of-stake (PPoS) is used by Algorand, a blockchain specializing in dApps (decentralized applications). In contrast to most PoS systems, this protocol lacks an internal penalty mechanism to thwart fraudulent node behavior or potential security vulnerabilities and algorithm flaws. Instead, PPoS offers minimal stake criteria, which allows any willing participants to join and secure the blockchain. In a delegated proof-of-stake (DPoS) framework, blockchain users have the authority to assign a predetermined number of validators—called witnesses—the responsibility of creating new blocks.

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  • It consumes significantly less energy since there is no need for extensive computational calculations.
  • When the monetary value of the bitcoin network increases, miners are financially incentivized to join the network.
  • Critics argue this leads to a “the rich get richer” situation, resulting in a less decentralized system.
  • Bitcoin mining uses more electricity annually than the countries of Finland and Belgium.
  • Plus, the benefits of decentralization can be diminished if a small number of “mining farms” dominate the mining process.

Supporters believe proof of work is more decentralized than other consensus mechanisms. One argument from this perspective is that there are practical limits to how much mining power one can acquire in a proof of work system. Mining requires enormous amounts of computing power, which requires computer chips and electricity.

Q: What is proof of stake?

Since blockchains lack any centralized governing authorities, proof of stake is a method to guarantee that data saved on the network is valid. Under PoW, all the computers or nodes in a network compete with each other to solve complex cryptographic puzzles, a process we call cryptocurrency mining. The fastest miner adds new blocks to the blockchain and receives the newly minted digital currency and transaction fees as incentives. The blockchain network remains secure because it would require a bad actor to take over at least 51% of the network and its computing power. The blockchain can become forked, which means the community changes the blockchain’s protocol and the chain splits into a second blockchain. To prevent duplicate transactions or spending, the history of the original also moves in a new direction.

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  • In exchange, they get a chance to validate new transactions and earn a reward.
  • When using a Proof of Stake consensus mechanism, it would not make financial sense to attempt to perform a 51% attack.
  • The debate on proof of work vs. proof of stake is ongoing and essential to the blockchain and cryptocurrency community.
  • The blockchain network remains secure because it would require a bad actor to take over at least 51% of the network and its computing power.
  • Energy production at that level can emit 65 megatons of carbon dioxide each year into the atmosphere.
  • They each solve the basic problem of verifying transactions without using a central authority.

Lots of other blockchains copied the original Bitcoin code and as such, also use the Proof of Work model. Although Proof of Work is an amazing invention, it is anything Proof of Stake vs Proof of Work but perfect. Not only does it need significant amounts of electricity, but it is also very limited in the number of transactions it can process at the same time.

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