In the world of cryptocurrencies and blockchain technologies, the debate over Proof of Work (PoW) vs. Proof of Stake (PoS) has raged for a long time, with many arguments on both sides.
Both are essentially algorithmic consensus mechanisms that are mostly used to establish which nodes in a given cryptocurrency blockchain network are “authorized” to add new validated blocks to that chain.
Proof of Work depends on electronic mining, while Proof of Stake depends on token or coin ownership for validation of new blocks.
To be fair across the board, both of these consensus-building technologies have their merits and defects.
We’ll explain how they compare, how useful Proof of Work is, and why this debate should matter to anyone interested in crypto.
What is Proof of Work?
The core mechanism behind Proof of Work is mining. This isn't in a literal sense, but electronically.
“Miners” basically use their individual or group resources of computing power to compete against one another in solving complex mathematical puzzles.
If a mining group or miner solves a puzzle before others, they get to create a new block for that particular cryptocurrency blockchain and broadcast it to the wider network, which then collectively audits their work to ensure that it is valid.
If so, the new block is integrated to the previous blocks in the whole blockchain and a certain number of new tokens are allocated to these miners as a reward.
This process in Proof of Work cryptocurrencies is called mining, and it requires heavy duty computing power on hardware processing units called ASIC miners.
Given the rising price of Bitcoin over the years, the financial incentives to successfully form a new block are high, especially when viewed over the long term.
The specific details of mining procedure, difficulty, and rewards vary from one crypto token to another. Bitcoin is the first and most famous example of a Proof of Work cryptocurrency.
The electrical needs of this process for just this one single block can vary, but as of right now they may involve up to tens or hundreds of thousands of kWh in energy. This, by the way, is one of the main criticisms against the Proof of Work consensus, although the innovative crypto community are coming up with all kinds of ways to reduce or even offset the energy required in mining.
Examples of Proof of Work Coins
There are many Proof of Work coins and tokens on the market, especially among older and more established cryptocurrencies. The two most famous examples of PoW cryptocoins are BTC and ETH, although the Ethereum network will soon initiate The Merge - a switch to the Proof of Stake consensus mechanism.
Other major cryptocurrencies that use Proof of Work include the following:
- Dogecoin (DOGE - a “meme” coin)
- Litecoin (LTC - a faster but less secure version of Bitcoin)
- Bitcoin Cash (BCH - a fork of the Bitcoin network)
- Monero (XMR - a privacy coin)
- Ethereum Classic (ETC, an older fork of the current Ethereum)
- Zcash (ZEC - another privacy coin)
- Dash - (DASH - another privacy coin)
- Decred (DCR - a coin that aims for truly decentralized governance)
These are just the currencies and tokens that have the largest market capitalization based on their total circulation quantity vs. price per coin. There are, however, many other Proof of Work coins and tokens trading on exchanges and supported by major crypto wallets like Exodus.
Proof of Work vs. Proof of Stake
With Proof of Stake, the complex mathematical puzzles are removed when it comes to block formation.
In PoS systems, the equivalents of miners are people called validators, who validate transactions and new blocks by having or buying large holdings in a given blockchain’s currency.
The idea behind this is that if a group or person invested enough to buy so many tokens, they can be trusted to not manipulate the process of forming new blocks.
Because Proof of Stake validators are staked into the network, they have an interest in making sure that that blockchain stays trusted and successful.
One interesting thing about Proof of Stake cryptocurrencies and tokens is that being involved with them enough to participate in block formation decisions doesn’t require the technical knowledge needed in Proof of Work networks.
It is important that validators and stakers do their own research when choosing a network to invest in though. Most of the so called “Ethereum killers” will not be successful in the long run.
The easy buy-in potential of PoS is also a criticism of these types of networks though, mainly because it can lead to ownership centralization and coin manipulation in ways that are much more difficult with Proof of Work coins.
Proof of Stake is, however, often much faster than Proof of Work. Blockchains like Ethereum and Bitcoin can process only limited amounts of transactions.
With Proof of Stake coins, transaction processing can scale up much more quickly. Scaling up like this in Proof of Work networks requires more complex workarounds from technologies such as the Bitcoin Lighting Network.
Examples of Proof of Stake Coins
Currently, there are fewer Proof of Stake cryptocurrencies on the market than there are Proof of Work coins and tokens. As of 2022, there are about 80 in existence. Among these are some famous newer examples, such as:
- Binance Coin (BNB - a centralized exchange coin)
- Cardano (ADA - a scalable blockchain platform)
- Solana (SOL - another super-scalable blockchain platform)
- Polkadot (DOT - a platform that aims to unite all other platforms)
- Avalanche (AVAX - another smart contract platform)
- NEAR Protocol (NEAR - a platform based around an algorithmic stablecoin)
- Algorand (ALGO - another scalable blockchain platform)
- Cosmos (ATOM - another platform that aims for interoperability )
Proof of Stake is gaining momentum in the wider world of crypto, but its future is far from established and PoS hasn’t yet been proven to work on nearly the same scale as Proof of Work. Etherem’s move to Proof of Stake should prove very interesting.
On the one hand, it Proof of Stake offers faster transaction handling benefits than Proof of Work, and many consider it more environmentally friendly because it doesn’t need the electrical use of PoW.
But Proof of Stake platforms are not as secure as Proof of Work platforms, as evidenced by the recent meltdown of the Terra LUNA PoS ecosystem.
The Crucial Benefits of Proof of Work Coins
Cryptocurrency blockchains involve thousands, even millions, of people investing their hard earned fiat currencies (think U.S. dollars, Pounds, Euros, etc) into digital coins that they can use or hold. This fundamental use of technology means that security and dependability are extremely important for avoiding manipulation and massive fraud on the blockchain level.
For both of these qualities, Proof of Work is king.
Security
Proof of Work helps ensure blockchain security because it relies on complex mathematical computation that requires large amounts of work to complete.
The cryptographic protocols behind PoW blockchains, like Bitcoin and Ether, make it essentially impossible for anyone using current computing technology to manipulate coin creation and trust.
Compromising a network of PoW nodes like Bitcoin would be prohibitively expensive and time-consuming.
This security makes currencies more secure than many of their Proof of Stake counterparts.
Decentralization
Large, centralized mining pools do exist with Bitcoin and other Proof of Work coins.
They also benefit from barriers to entry by competitors because under certain market conditions it can cost an enormous amount of money to mine Bitcoin or other major currencies at a profitable scale. However, these mining interests don’t control the coins themselves or their blockchains.
Miners can dig for them by solving mathematical puzzles, but the danger of new competition is always present for future block creation, mainly because the puzzle-solving process is outside the control of any individual or group.
This is very different from Proof of Stake coins, where the player with the deepest pockets can simply buy their way into control, and possibly manipulate, a given coin or blockchain.
Proof of Stake vs. Proof of Work, a Final Verdict
There are definite problems with Proof of Work. Its energy use is often exceptionally high and the cost of mining sometimes create barriers to entry for new players. However, despite these things, Proof of Work delivers solid performance on the key issues of security, reliability at scale, and dependability in terms of long-term strength.
Start your crypto journey with Exodus
It’s easy to get started with Exodus. You can buy your first crypto and begin diving into Web3 from right where you’re at, using your web browser, phone or laptop.
A short list of what you can do straight away:
- Buy crypto with credit/debit card, bank transfer, or Apple Pay
- Swap crypto at the best rates
- Collect, buy and sell NFTs
- Stake crypto to earn even more crypto while you sleep
Exodus is a self-custodial wallet, which means that both your data and funds remain compeltely in your control.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.
