CRYPTOACADEMY SEASON 3/ INTRODUCTORY TASK 4/ POW VS POS

PROOF OF WORK VS PROOF OF STAKE.

(1) What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?

Cryptocurrencies are built on Blockchains. Blockchain on the other hand are Decentralized. It implies that there are no central control as seen in the traditional finance systems. However, without organisation, no platform can function effectively. Cryptocurrencies use some form of algorithm to reach a consensus on who validates transactions and who mints new coin.

Among the consensus algorithm that has been deployed includes proof of work (POW), proof of Stake (POS), delegated proof of Stake (Dpos), pure proof of Stake (PPos)etc.

In this post, I will discuss proof of work and proof of Stake.

WHAT IS PROOF OF WORK CONSENSUS ALGORITHM?

To mine new coin in the proof of work consensus algorithm, miners need to offer proof of their work by solving some mathematical puzzles required before finding new blocks. These mathematical calculations are done to verify previous blocks and then new transactions can be boundled into a new block. These calculations can not be done by human head but by computers.

As the blocks in proof of work system expands, the more difficult it becomes to solve the puzzles and would require high and efficient computer equipments to to achieve such. High and efficient computer equipments required in proof of work consensus algorithm is a real difficult task for miners, because It requires huge amount of money to set up and high cost of electricity to run them. It is therefore only nodes who can afford these equipments and the cost can be able to mine new coins in proof of work consensus algorithm.

Miners in proof of work consensus algorithm are selected randomly. However a node gets to mine new coins if it's computer is capable of solving the puzzles. For it's work, the node receives block rewards.

Cryptos using proof of work consensus algorithm includes, Bitcoin, Ethereum, Bitcoin cash, monero, digecoin etc.

PROOF OF STAKE CONSENSUS ALGORITHM.

Proof of stake consensus algorithm do not depend on high computer equipments or the spending for electricity to run the node, rather in proof of stake consensus algorithm miners serve as block validators. To qualify to become a block validator, a user will stake a minimum amount of native token of the cryptocurrency required as collateral then it can validate blocks.

In some POS, ouroborous for example, a required minimum amount to be staked is stipulated. These coins will be locked away for some time without being in circulation. The node that has staked it's coin can then validate blocks and receive block reward. In POS the person with the highest stake validates blocks.

Coins using POS includes Ada, polkadot, solena, BNB, cosmos etc.

Proof of Stake is employed to solve some issues facing proof of work consensus algorithm. One of such issues is scalability and speed to complete transactions. For example, Bitcoin can take up to 10 mins to an hour to complete a transaction whereas Cardano coin ADA takes up to 40 seconds to complete same amount of transaction.

The second is high transaction cost. One of the problem with Ethereum is high gas fees. When compared to coins using proof of Stake consensus algorithm pow is costly.

DIFFERENCES

POW	POS
Has block miners	has block validators
Require high equipment and energy for miners	requires validators to stake their token.
High transaction fees	low transaction fees.

ADVANTAGES AND DISADVANTAGES.

ADVANTAGES OF POW

• Better security
• random selection of block miners.

DISADVANTAGES OF POW

• low scalability and transaction fees.
• High cost of mining equipments.
• high gas fees.

DISADVANTAGES OF POS

• Less secure
• Winner take it all syndrome. Block validators with high stake can continue earning.

ADVANTAGES OF PROOF OF STAKE

• Scalability and speed
• Staking increase coin worth as it reduces number in circulation
• Low transaction fees
• No cost for power and equipments.

WHICH ONE IS MORE SCALABLE?

proof of Stake is more scalable. Example above of Bitcoin and Ada shows such. It clarifies that proof of Stake consensus algorithm is more scalable. It takes ada 40 seconds to complete transactions that might take Bitcoin 10 minutes to complete.

CONCLUSION

POW requires high computers and money to continue mining whereas POS requires a user to just stake coin.
The both consensus algorithm has its pros and cons but POS has proven to be preferred due it's advantage over pow.

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