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What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?
TERMS
Scalability- the capacity to be changed in size or scale.
- is the property of a system to handle a growing amount of work by adding resources to the system.
A system needs some implemented measures, rules and regulations to guide and properly function. In a centralized system, its a central control highest on the hierarchy. For a blockchain network, the nodes(servers)participating in a transaction must come to an agreement without need for third party. This is what we refer as consensus,the adoption of this technique in the blockchain system is the consensus mechanism.
Consensus mechanism is vital way to make sure that all transaction made on the blockchain are validated and accepted accordingly.
The very first consensus mechanism established on the blockchain is the Proof Of Work(PoW). This was achieved by Satoshi Nakamoto when he was building the ever first cryptocurrency(Bitcoin). Ever since then, other consensus mechanisms have been created they are as follows:
- Proof of stake(PoB)
- Proof of capacity(PoC)
- Delegated proof of stake(DPoS)
- Proof of Burn(PoB)
DIFFERENCE BETWEEN PoW AND PoS
| PoW | PoS |
|---|---|
| low scalability | high scalability |
| maintenance cost is high | maintenance cost is low |
| longer transaction duration | lesser or moderate transaction duration |
| less energy efficient | high energy efficient |
| mining probablility is determined by how much computing work the miners do | probability of validating a new block depends on how much stake a person holds |
What is PoW?
This is a protocol designed to form secure digital transactions with no need for a third party. It was the very first way used to determine if a transactions to be verified /validated.
You might ask, how can the network know which to validate? The validation is achieved on puzzle solutions, and the reward for whoever solves the puzzle is what is referred to as mining. This is only made possible by super fast computers who tend to solve this puzzles within seconds which is not as fast as a human brain can handle and add new blocks to the blockchain.
Advantages of PoW
Every block contains different transactions which must be independently verified. This is a way of maintaining and avoiding duplicate transactions.
It does not rely on a third party, this definitely creates transparency.
Better scale of decentralization.
Disadvantages Of PoW
low scalability.
High level of energy consumption.
The super computers would require a high level of maintenance. This is dimmed expensive to keep them functional and running.
PoW is said to be a risk of about 51% on attacks. This is what makes it a very hard to do work.
What is PoS?
Proof of Stake is a consensus algorithm that decides who gets to validate a new block by how much a stake a person has. The validity of a blockchain is chosen randomly by stakers and the highest gets a chance to validate.
A simple comparison would be auctions, at auctions the highest bidder takes the item on auction.
The stake is based on the number of coin the individual possesses for the blockchain they are trying to mine. Here, the validators do not receive a block reward instead the get network fees as rewards.
Advantages of PoS
Unlike PoW, there is low energy consumption.
High scalability.
Eliminates monopoly.
Shorter transaction duration.
Disadvantages of PoS
It can be said to be centralized, this is because more money means stake. If you can't invest you can't stake.
It is less secured compared to Proof of work.
Scalability
A system is adjusting to handling a growing amount of work .With a consensus mechanism such as PoW and PoS where nothing is fixed as in PoW where super smart computers are working to decipher and solve and PoS where the number of participants is not fixed either.
In PoW, there is no limit for bigger expansion because everyone is trying to dominate the network. This is why scalability is low. While in PoS, it is not a group of people trying to outsmart each other but tokens. This makes room for expansion and high scalability.
Examples of tokens using proof of work
- Bitcoin
- Ethereum
- Dash
Examples of tokens using proof of stake
- PIVX which is a derivative of Dash token, has its focus on security and privacy for its users. It is the first private proof of stake token.
Other examples are :
QTUM
Ethereum(this is because they moved prior to the launch of the PoS consensus algorithm).
Caradano
Nxt.
Conclusion
As blockchain technology becomes more advanced, lots of other consensus algorithms are hitting the market, all with their pros and cons. But the PoS has brought some solution to a lot of problems encountered by the PoW.
This is a good upgrade, particularly because of the electricity consumption and not prone to the 51% attack as all stakeholders make sure of that to eliminate loss.
I would like to thank prof @sapwood for his clarity on this lecture.
Hi @sandrakez, Thank you for taking interest in the 4th Task of the Beginners Fixed Class. Your grades are as follows:
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