Proof-of-Work vs. Proof-of-Stake – A Guide To Crypto’s Most Popular Consensus Mechanisms

[vc_row][vc_column][vc_column_text]The long-awaited Ethereum ‘Merge’ is finally complete! 

The blockchain’s shift from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS) model represents one of the crypto world’s most significant network upgrades to date. 

Officially executed on September 15th, 2022, the Merge slashed Ethereum’s energy consumption by 99.95% and led many to hope the blockchain would feature more robust scalability capabilities and increase security. [/vc_column_text][vc_column_text]The long, often-delayed Merge process garnered plenty of headlines in and outside the crypto world. It also led many to grow more curious about PoW and PoS. As a result, both remain the most well-known and popular consensus blockchain mechanisms used by countless crypto projects.

But what exactly are PoW and PoS? Why did Ethereum developers want to switch? What are the advantages and disadvantages of both mechanisms?

Keep reading to understand more about PoW and PoS.[/vc_column_text][vc_video link=”https://www.youtube.com/watch?v=kVuOI1IefpA” align=”center” title=”Proof of Work vs Proof Stake – What’s The Difference?”][vc_column_text]

All About Proof-of-Work (PoW)

[/vc_column_text][vc_column_text]1993 as a tool to fight spam emails and DDoS attacks. 

In a PoW system, blockchains are secured and verified by miners who race to be the first to solve complex computational equations. Winners get to update the blockchain with the latest legitimate transactions and collect crypto rewards. 

Miners often build elaborate and usually expensive crypto-mining computer rigs to stand a chance as a competitive miner to earn. Rigs might include CPUs, GPUS, ASICS, and other hardware. 

Miners often set up in areas with cheap electricity to maximize profit. [/vc_column_text][vc_single_image image=”30006″ img_size=”FULL”][vc_column_text]One of the fallouts of the Merge is the shuttering of many PoW mining operations. Research from late September 2022 estimates Ethereum’s shift displaced about 5 billion dollars worth of mining hardware to PoS. As a result, miners either closed shop or migrated to other PoW chains to continue working. 

While PoW has been maligned due to the Merge, the consensus mechanism does have powerful advantages. 

Blockchains like Bitcoin still rely on PoW as the system is a proven way to keep a blockchain secure and decentralized. In addition, network power and security are enhanced as more miners participate, a common occurrence as PoW-based cryptos rise in value. 

Double-spending is extremely difficult in a PoW system as blockchain modification would force a miner to re-mine subsequent blocks. So naturally, miners earn incentives to perform tasks honestly to collect rewards. 

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All About Proof-of-Stake (PoS)

[/vc_column_text][vc_column_text]Proof-of Stake advocates claim the PoW model has significant holes. Many argue that PoW systems are incredibly environmentally inefficient as rigs often chew up massive amounts of electricity. 

Others assert the PoW model is too limited from a scalability perspective – an issue that plagued Ethereum as the blockchain became more popular (and used) due to the DeFi’s rise. [/vc_column_text][vc_column_text]In a PoS system, miners do not rely on computer rigs but instead stake their crypto collections to validate blocks. The choice about who validates each transaction is randomized, based on a weighted algorithm that hinges on the stake amount and validation experience. 

After a block is mined and added to the chain, the miner receives a crypto award and their original stake. Miners stand to lose their stake if the block is mined incorrectly, encouraging miners to stray away from fraud and trying to steal coins. [/vc_column_text][vc_single_image image=”30008″ img_size=”FULL” alignment=”center”][vc_column_text]In most PoS systems, serving as a validator is seen as a role with much responsibility. As a result, most major PoS blockchains require validators to stake large amounts of crypto to participate. For example, prospective Ethereum validators must stake 32 ETH to get started.

As a result, many stakers opt to join staking pools. Here crypto can be allocated together, a process known as delegating.

Those in a staking pool participate in the validation process and earn rewards proportional to the amount staked.[/vc_column_text][vc_column_text]In a world increasingly focused on environmental stewardship, many believe the PoS model might be the way forward for the crypto world, as it boosts cost efficiency and reduces the carbon footprint of digital currency.[/vc_column_text][vc_column_text]

PoW vs. PoS: Which Comes Out On Top? 

[/vc_column_text][vc_column_text]Both the Proof-of-Work and Proof-of-Stake consensus mechanisms are well-regarded within the crypto world. Preferences come down to the particular perspectives of crypto users and development teams.

Overall, in the Proof-of-Work vs Proof-Of-Stake debate, both models incentivize blockchain efficiency and productivity, reward honest actors with crypto, and discourage fraud and manipulation.

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