Proof Of Work Vs Proof of Stake - How Do they Work?

Today, we are going to speak about the two of the most popular consensus mechanisms in the cryptocurrency industry, called Proof of Work and Proof of Stake. We are going to explain both of them in detail, and state the differences between the two. But before we start, let's find out why these two mechanisms are being used in the cryptocurrencies.

Most of the cryptocurrencies are decentralized (sorry, Ripple) and they need some sort of algorithm to solve the issue of trust. Because in any Blockchain, you are sending the money from one place to another and you need to have a designed system to ensure the trust between the participants is being achieved.

These algorithms are mainly used to confirm the detail of the transfers such as the ownership and the transferred amount. Since there is no 'centralized' authority to confirm the transfers, we need to rely on complex algorithms to do that. Proof of Work and Proof of Stake are the two main algorithms are being used in this emerging space at the moment. So, let's start with Proof of Work...

Proof of Work

Proof of Work uses the cryptography to determine whether the transaction is valid or not. And one of the main examples of using Proof of Work concepts is Bitcoin, the leading cryptocurrency. Apart from Bitcoin, we know that the coins like Monero (XMR), Zcash (ZEC) and Ethereum (ETH) are using it to secure the network. But we know that the latter, Ethereum, is switching from Proof of Work to Proof of Stake, which we will explain later in this article.

We mentioned about cryptography. This method uses mathematical equations and miners will try to solve them. With solving and verifying the transactions, miners will receive block rewards. By doing that, miners will ensure the security of the network and this method will also prevent 'double-spend' attacks.

So far, it looks like the Proof of Work is a great system. But like any other mechanism, it has some flaws but one of the main thing that is energy consumption. Since it relies heavily on mining equipment and electricity, becoming a miner in the Bitcoin or any other PoW coins isn't an easy task. Mining operations consume a large amount of energy, which is very bad for nature. It also raises the question about the sustainability of the system in the long term.

Scalability is another issue that the Proof of Work system has. In Bitcoin Blockchain, the average time required to complete one block is 10 minutes. And Bitcoin Blockchain can only allow seven transactions per second. This means that in the busiest times, the cost of sending a Bitcoin is huge.

Proof of Stake

This model uses a different algorithm to confirm the transactions are valid or not. The principles of 'cryptography' are, of course, being used, but the mechanism is to reach that is different. In Proof of Work, we have the miners but in Proof of Stake, we have people who are staking their cryptocurrency to create the next block. Stake means that the number of coins that the participant is 'staking' in Blockchain to secure the safety of the network.

But what the people do are different in comparison to Proof of Work model. There are no block rewards for the Proof of Stake system but people do get the money from transaction fees. But how do they get those fees? Let's find out.

To become 'eligible' to validate the transactions, the user must deposit their coins to a certain wallet. In this wallet, the coins will be 'frozen' and they are being used to secure the safety of the network. How much you can get from validating transactions is depends on how much coins are you planning to stake in Blockchain. Many Blockchains have the minimum deposit amount for staking. And when it comes to 'POS rewards' that you will earn by staking, MyCointainer has a specific plan for you.

On our platform, you can stake lots of different Proof of Stake coins. And doing that, you can earn the POS rewards with absolutely no hassle. In addition to that, some of our subscription plans allow you to keep all of your earnings to yourselves. With doing that, you can get more money than staking on MyCointainer, which is perfect for you. To get more detailed information about how you can maximize your POS rewards, please take a look at this article.

Going to Proof of Stake, there is one thing that's very important to achieve a certain level of security in the networks. The staking amount can vary from people to people, but if someone tries to hack the network, then he will lose the stake that he has. That makes Proof of Stake coins are less susceptible to hacking or double-spending attacks.

In addition to that, proof of stake coins is really eco-friendly, unlike the Proof of Work systems. Since the Proof of Work systems relies heavily on energy consumption and mining equipment, its long term effects on nature and carbon footprint are remained to be seen. Many critics against cryptocurrencies are also using this argument to criticize Bitcoin and other cryptocurrencies. But with Proof of Stake, you don't need to spend lots of energy to secure the network, which is a huge plus.

Conclusion

Proof of Work system is, of course, the older and mainly used one in terms of cryptocurrencies. But we can say that with the decision coming from Ethereum team to switch from Proof of Work to Proof of Stake, the whole situation is starting to change. We are now seeing lots of different Proof of Stake coins each day. And many people are saying this is the way forward when it comes to consensus algorithms. To consider your options about which coin or coins are you going to stake, you can visit the homepage of MyCointainer.