POW vs POS
INTRO:
With the advent of thousands of cryptocurrencies and various blockchain technologies, it can be hard to keep up with their seemingly arbitrary tech phrases on why they are the next big thing. Of these phrases, the terms Proof of Work and Proof of Stake often come up when talking about blockchain.
Lets break this down:
Proof of work on a blockchain requires powerful computers to solve cryptographic algorithms to verify transactions, this is known as mining. Basically, it means solving really hard math problems which prove that the miner put in the necessary work to earn the proof of work reward. Popular blockchains like Bitcoin, Litecoin, Ethereum, Bitcoin Cash, and many more use Proof of Work.
In return for their hard work, the miners get the block’s rewards of Bitcoin, Ethereum or other currencies associated with that blockchain.
Why do they solve these equations do you ask? What good does it do to just have the computer do seemingly random calculations?
Well, it is for security measues. Since miners are in charge of verifying transactions via solving theses algorithms which encrypt transactions, they have a say in the network. If 50% of the miners are malicious and try anything that goes against the others, then they can sway the network and make it do what they want.
Fortunately, they would need an impossible amount of computational power to achieve this. Sounds like a secure way to verify transactions right?
Unfortunately, it has its pitfalls. The cryptographic puzzle gets harder and harder, requiring more computer power and more energy being used. This can lead to a waste of resources, and is not a good solution in the long run.
Introducing Proof of Stake!
Like Proof of Work, Proof of Stake is a way to verify transactions on a blockchain. Instead of verifying transactions with raw power, it uses a more democratic like voting system that determines who is going to be the new creator of that block and earn the reward. There are several factors that go into this, such as the amount of money the person is holding or how long they have been a part of the network. In this case, they aren’t mining, so are they miners? No, we have another name for them: validators! Because they are validating transaction!
Proof of stake is a lot more energy efficient than proof of work, however, there is room for abuse. Just like how if you control 50% of the network in PoW, then in PoS you can also launch an attack where you buy 50% of the currency, aka 50% stake in the whole network. PoS blockchains are also vulnerable to Sybil attacks, where users can create fake accounts that can participate in the voting of the network, swaying the opinion.
Both protocols are ways to keep our cryptocurrencies running and safe. Proof of work provides a sure-fire way to secure the network via physical computing and hard work. Unfortunately, it wastes a lot a power, and isn’t as sustainable as Proof of stake. Proof of stake provides a voting system and a less intense way of validating transactions, but can be subject to trials such as Sybil attacks. Keep in mind there are other protocols, like Proof of Importance and Proof of Capacity, which we will save for another time. Happy blockchaining!