Blog Crypto What’s the Difference Between PoS vs PoW?

What’s the Difference Between PoS vs PoW?

date May 14, 2022 time 5 min read 352 views

Cryptocurrencies are about more than just a market full of price speculation. The technology behind them is revolutionary, and the consensus mechanisms are a key ingredient—but what’s the difference between PoS vs PoW? These two systems have similar aims, but they use very different means to achieve them.

If you’ve spent any amount of time in the crypto space, there’s some lingo you’ve almost certainly come across—two of those terms are proof of stake (POS) and proof of work (POW). It’s essential to understand what these concepts mean and how they affect your crypto assets. So, how do POS vs PoW compare, and what does it mean for you?

The short answer is that PoW and PoS describe the consensus mechanisms cryptocurrency blockchains use, and they confirm transactions. But if that doesn’t clear things up for you, don’t worry. We’ll go through PoS and PoW in detail, outlining their pros and cons.

Proof of Work (PoW)

We’ve already mentioned that PoS and PoW are both consensus mechanisms; now, let’s explain what that actually means. Since blockchain protocols are decentralized, they can’t rely on a centralized authority like a bank to legitimize all transactions. 

Bitcoin was the original proof of work crypto, but many other PoW coins have caught on since.
Bitcoin was the original proof of work crypto, but many other PoW coins have caught on since. (Source: Unsplash)

Instead, everything functions autonomously. This is due to a combination of “nodes” (different individuals in the network) verifying transactions and the use of complex software algorithms. No blocks are added onto the chain unless they’ve first been through a consensus mechanism, and one of the most popular methods is PoW.

How does PoW function?

Proof of work originates from the world’s OG cryptocurrency, bitcoin. You’ve almost certainly heard of bitcoin miners, and these people play an essential role in the PoW process. When crypto miners (or rather, their computers) verify transactions, they must generate a string of numbers that matches the only possible combination for the relevant data. 

This prevents anyone from changing the data maliciously, because tampering would stop the hashes from matching up. PoW gets its name because miners use their computer power to carry out problems of increasing difficulty, so they’re literally proving their legitimacy by doing a significant amount of work.

Although bitcoin popularized proof of work, it’s worth noting that it didn’t quite pioneer the concept. In fact, it dates back to 2004, when a reusable proof of work mechanism was first used for digital money by Hal Finney. Now, it’s gone way beyond bitcoin to many other crypto protocols. Other examples of PoW coins include ethereum (although it’s now shifting over), dogecoin, litecoin, bitcoin cash, and monero.

Pros and cons

PoW was introduced to ensure crypto is secure, and most would agree it’s achieved this aim. It’s almost impossible to alter the blockchain when a proof of work protocol is used. And since it gives an incentive for miners to keep the blockchain going, the system can sustain itself.

In theory, PoW should also help to keep crypto democratic since so much processing power is required, meaning it’s difficult for any one person to obtain a monopoly.

However, the level of computer power used is also one of PoW’s greatest drawbacks—it’s environmentally inefficient and has received plenty of criticism for precisely that. “Mining factories” using crazy amounts of energy just to verify transactions have sprung up, and many people find the waste outrageous.

PoW is also fairly slow—it takes about ten minutes to verify a transaction on bitcoin. This might not sound like much, but it huharms rts the scalability of the protocol.

These are a few of the reasons why an alternative sprung up.

Proof of Stake (PoS)

Proof of work might have seemed like a revolutionary idea when it was first introduced, but these days, proof of stake has found more favor within the crypto community.

As Ethereum transitions to a PoS system, the consensus mechanism is getting even more attention than before.
As Ethereum transitions to a PoS system, the consensus mechanism is getting even more attention than before. (Source: Unsplash)

In proof of stake protocols, there are no miners—just stakers (or validators). When staking, validators use their holdings of the relevant cryptocurrency to effectively “bet” on whether a transaction is legitimate. If they’re right, they get a reward; but if they’re wrong, they’ll receive a penalty. This is decided once a number of nodes reach a consensus about the outcome, at which point a new block can be added to a chain.

These validators are chosen at random for each transaction, meaning they don’t compete with each other by having the most energy (unlike with bitcoin).

Validators may also receive better rewards if they’ve held more of a crypto for longer, which incentivizes involvement in a community.

Ethereum is now shifting over to Ethereum 2.0, which will use a proof-of-stake mechanism instead of proof of work. Other prominent PoS coins include cardano, solana, polkadot, tezos, and avalanche. Generally, newer coins tend to favor a proof of stake system, whereas the older cryptocurrencies relied on proof-of-work since it was all that was available at the time.

Pros and cons

When you compare pos vs pow, it’s clear that a proof of stake system can verify transactions much faster. For instance, Solana can verify transactions in 800 milliseconds , and many other crypto protocols using PoS claim to be just as fast (or even faster).

PoS coins are getting more attention thanks to their comparative efficiency and sustainability.
PoS coins are getting more attention thanks to their comparative efficiency and sustainability. (Source: Unsplash)

This helps to make the protocols much more scalable and capable of carrying out a wider range of applications than just payments, such as smart contracts.

PoS is also more environmentally friendly. It doesn’t require as much computer power to stake coins as it does to competitively solve cryptographic puzzles.

However, that doesn’t mean it’s a perfect system. There are some concerns about what’s called a 51% attack. This is the possibility that somebody could own 51% of all cryptocurrencies in a protocol, meaning that they’d potentially be able to manipulate the staking process instead of acting in the interest of the community at large.

Developers are always trying to come up with better alternatives, so who knows which ideas could be leading the crypto world a few years on.

Buy MCT token today

Proof of work walked so that proof of stake could fly, and who knows what could come next. It’s an exciting time to be alive, yet the PoS vs PoW debate is just one reason why the space can be so hard for beginners to get their heads around.

We’ve created our own MCT token to offer a simpler route in. The token allows you to convert between cryptocurrencies (including PoS coins and PoW coins) and access all kinds of other financial products with one coin. 

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It’s now available on PancakeSwap for US users, and everyone else can access it directly through  MyConstant

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George Schooling

George Schooling

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