Proof of work vs proof of stake


One of the main hurdles of Satoshi Nakamoto, the person(s) who developed the first cryptocurrency ever, was to make it a system that solely runs on its network. By no means they could appoint a third-party moderator which would verify transactions. This then would nullify the entire plan of making cryptocurrencies decentralized. This is exactly when Proof of Work came into existence as a means to verify transactions within its blockchain network. Proof of Stake is comparatively a newer invention that came into existence in 2012 as a refutation to the Proof of Work system. Let us delve a bit deeper.

The distinction between PoW and PoS

PoW is essentially a consensus that is achieved in a blockchain network. This means that it was introduced to verify transactions and keep a check regarding its smooth functionality. Starting from checking the validity of a transaction to verifying if some node is double-spending, everything happens because of this nodal consensus. The technicalities of it are based on complex mathematical problems and puzzles called cryptography. This is also why these kinds of digital currencies are called cryptocurrencies.

These puzzles are extremely difficult to solve and unique nodes with advanced computing knowledge can crack them using the PoW system. Once that is done, the transaction stands verified and the entire network becomes aware of its authenticity. Hence, with the PoW system, it is difficult to verify a transaction, but once done, all participants can confirm whether it’s genuine or not.

The major drawback of the PoW system

Proof of Work suffered a backfoot, the reason of which can be best described in two points:

  1. The PoW method of verifying crypto transactions needs huge chunks of electricity. This means the rapid exhaustion of fossil fuels. It is argued that Bitcoin with its PoW model exhausts electricity worth $150,000 a day.
  2. It offers only a restricted amount of transactions that it can compute at a given time. For instance, for BTC, new blocks of transaction data can be only added every ten minutes.

The rise of the PoS model

As a result of its drawbacks, PoW faced backlashes and other better mechanisms started sprouting. One of the most famous alternatives to the PoW system is the Proof of Stake model. It was invented by two software developers namely Scott Nadal and Sunny King.

While Bitcoin is using the PoW model, Peercoin became the first-ever cryptocurrency to work under the PoS system. It is argued that Peercoin with its PoS system turns out to be more advantageous than the previous one. It has a better mining model and improved scalability in terms of transactions and it is imperative to mention that it gorges on lesser electricity.

As a result of this, Ethereum, another of the most celebrated cryptocurrencies, is planning to shift to the Proof of Stak system soon. Though we do not know when the developers are planning a full-fledged rollout of Ethereum under PoS, they are aiming for it for quite a long time now.

Useful differences

  1. PoW burns more electricity than PoS models.
  2. With mining as a part of the PoW model, more wealthy organizations are owners of the costly apparatus used to mine cryptocurrency and hoard assets. PoS has an inclusive approach and refutes the centralization of power in terms of mining.
  3. Hacking becomes difficult in the case of the PoS model as hackers would be required to own 51% of all the cryptocurrencies on the network, to commit fraud. This is next to impossible.

Whichever model comes off as the better option, it is a friendly reminder to safely keep your coins or trade them only through trusted bitcoin investment.


Last but not the least, another debate regarding whether there is any possibility of Bitcoin shifting to PoS is also doing the rounds for some time. While a very minuscule part of Bitcoin enthusiasts think that this could be possible and beneficial at the same time, the majority think that the complexity of the task is huge and the challenges – almost impossible to crack.


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Founded in 1994 by the late Pamela Hulse Andrews, Cascade Business News (CBN) became Central Oregon’s premier business publication. •

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