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Proof of Work vs Proof of Stake | Pros & Cons of PoW and PoS

If you are new to crypto it’s most likely that you would have already come across the words like consensus mechanism,  proof-of-work, and proof-of-stake. However, what are these fancy words that sound so complicated? Well, they are the algorithms according to which the blockchain system operates. These mechanisms keep the blockchains secure by letting only genuine users add transactions. These two mechanisms are entirely different from one another. While the crypto giants like Bitcoin and Ethereum use the Proof-of-work consensus mechanism, altcoins such as Cardano, and Avalanche all use proof-of-stake. 

Before we deep dive into the difference between these two consensus mechanisms and decide which one is better let’s first understand what proof-of-work and proof-of-stake actually are. 

What is Proof-of-Work

Proof-of-work was the most important consensus mechanism which was ideated in 1993 in order to combat spam and other service abuses. It received its official name as Proof-of-work in 1997. It was heavily unused till Satoshi Nakamoto used it in the development of Bitcoin. Bitcoin used this consensus mechanism to create a network between peers which was further used to secure the Bitcoin blockchain. In this mechanism, the probability of receiving the reward is determined by measuring the work generated. The larger the output of the work, the greater the chances to receive the reward. 

The crypto miners are required to solve cryptographic puzzles. Although this puzzle is a little difficult to solve but is easy to verify. Once the solution is found it gets broadcasted onto the network and the other nodes verify it after which the miner receives the reward.  For the block to be valid, the output is expected to start with a certain number of zeroes at the beginning of the hash value called “The Difficulty”. The output gets changed by the computing power of the network. The creation of the new blocks is slowed down by the adjusted difficulty of the Bitcoin network. 

What is Proof-of-Stake

In the proof-of-stake system, validators that are equivalent to miners in PoW are chosen to identify a block on the basis of the number of tokens being held by them rather than having a competition between miners to decide which block to add. This system replaces the work a miner does in PoW with the amount “staked” by the user. The network is secured by this staking structure because the potential participant must purchase the crypto asset and hold it till he is chosen to form a block in order to earn rewards. 

Proof of Stake is somewhat similar to depositing money in your bank accounts where interest is generated on the basis of the duration and amount it is being held. Cryptos utilize it by allocating tokens on the basis of their Coin Age. Coin Age is the duration of time for which the tokens are held. For an instance, if 100 tokens are held for 20 days then its coinage is 2000. 

In the proof-of-stake mechanism, the size of the stake decides the chances for a validator to be chosen to forge the new block. 

Additional Read: What are Smart Contracts?

Advantages and Disadvantages of Proof-of-work 

Advantages 

  • Higher security level
  • Lets the miners earn crypto rewards
  • Provides a decentralized method for verifying transactions

Disadvantages 

  • High consumption of energy.
  • Expensive fees with low transaction speed. 
  • Expensive equipment required for mining 

Advantages and Disadvantages of Proof-of-stake 

Advantages 

  • Does not require expensive equipment for participation. 
  • Fast and inexpensive transaction speed. 
  • Energy-efficient. 

Disadvantages  

  • Lacks in terms of security when compared to proof-of-work.
  • Validators with large holdings can influence the verification of transactions. 
  • Few of the PoS cryptos require locking up staked coins for a certain period of time. 

Additional Read: Which is the best crypto to invest in?

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