Reading our crypto news daily, you will unavoidably come across terms like Proof of Work (PoW), and Proof of Stake (PoS). While it may sound like complicated things that are difficult to understand for new investors because most of them originated from the IT and programming sector, however, learning is our mantra in the crypto sphere.
So at the end of the day, the more you are aware of the variations between Proof of Work and Proof of Stake the better as these concepts are crucial to getting a good grasp of cryptocurrency transactions and security. As both are considered consensus methods, they aim to achieve the same goal, however, the first is known for its security the other is known for its speed. But before we get to that, we have to understand what consensus mechanisms are.
What Are Consensus Mechanisms?
Since its inception in 2008, the underlying technology behind cryptocurrencies aimed to alter how the world of finance runs businesses. As it came to making a variety of financial processes simpler. However, since these operations are supposed to happen on a blockchain network that is not under the control of a single entity, there is a need to have everyone on the blockchain agreeing what transactions took place, all without the need for a centralized third party.
In order to achieve that, a consensus mechanism is required, as it functions as a technique for blockchain projects to protect the network from bad actors. A block must receive the approval of at least 51% of the network's nodes in order for consensus to be reached. The blockchain must have consensus mechanisms to operate in a decentralized manner, here is where Proof of Work and Proof of Stake come into play, as they are the protocols that empower strangers from all over the world to work together to build a new financial system independently.
What is Proof of Work?
Even though the invention of PoW is credited to Satoshi Nakamoto, the idea was developed in 1993 to combat junk email, but until Satoshi Nakamoto invented bitcoin in 2009, it was essentially inactive. That may serve as a consensus mechanism to protect the bitcoin blockchain, Nakamoto realized.
Proof of work was the first blockchain consensus algorithm to ever be implemented. It is an algorithm designed to get rid of fictitious computer usage. It was created to get rid of the problem of spending twice on cryptocurrency. Blocks containing transactions must first be confirmed by network users before being added to the chain. Validators use computational power to solve challenging cryptographic puzzles in order to validate blocks. A block is successfully validated by a participant, added to the chain, and the person is rewarded with Bitcoin.
What is Proof of Stake?
The Proof of Stake method has gained popularity over the past several years and has been used by some of the biggest cryptocurrency projects, including Solana and Cardano. The fundamental goal of PoS was to move the network's reliance from computer power to cash power, which would boost the network's scalability and efficiency. In proof of stake, validators are selected based on the "stake" they have in the blockchain, or how much of that token they agree to lock up in order to be considered as a validator. Putting more coins “at stake” means higher chances of receiving the prize as the validator who publishes the next block.
Wait.. Which is better?
You can analyze the cryptocurrencies in your portfolio more accurately if you understand the distinction between proof of work and proof of stake, which is a crucial distinction between blockchains like bitcoin and Ethereum 2.0 for example. For instance, staking your cryptocurrency and earning more money is a perk of proof-of-stake cryptocurrencies like Ethereum 2.0.
Nakamoto's algorithm has some limitations, despite the fact that it functions well. For starters, because it depends on mining, it gets more and more expensive. And although this is mostly considered as a disadvantage from an economic standpoint, the environmental element should not be disregarded.
The disadvantages of proof of stake include the hazards of double-spending. Also, The chain's governance can be taken over by participants with more tokens. In the end, PoW offers stronger security than PoS since it is more expensive to assault an established PoW.
