What are the core distinctions between the two? Furthermore, what makes one better than another?
Proof of Work
PoW was initially published in 1993 by Cynthia Dwork and Moni Naor, and it was really given a purpose in 2008 when Satoshi Nakamoto published his paper “Bitcoin: A Peer-to-Peer Electronic Cash System” creating the blockchain and the cryptocurrency called Bitcoin.
PoW can provide a distributed consensus, meaning that it is not necessary to trust and rely on now middleman like MasterCard, PayPal or Banks when discussing transactions, due to the fact that they keep registers with information about for every account. You can remove them altogether, gaining speed, efficiency and transactions at lesser fees.
When we are talking about PoW we can also underline the well-known concept of “mining” the process when computers are linked into a network in order to solve various mathematical problems to verify the legitimacy of each and every block in the blockchain and make new coins.
The difficulty of mining is underlined by its competitive nature, making it necessary to add more computing power to the network, the higher this parameter is, the higher the chances are for the miner to get rewarded by the system with coins.
Also, there are mining pools, people that are teaming up in order to increase the chances of mining a new block and also collecting the reward.
The process of mining has its pros and cons, miners help by adding processing power to the network in order to maintain the positive balance within the blockchain.
The main issue of it is the costs that are involved for each block creation, which is large, depending mostly on the processing power of each miner’s machine and it requires massive consumption of energy, it is not cost-effective.
According to recent studies, Bitcoin miners alone use approximately 54 TWh electricity, enough to power 4 million households in the UK.
Proof of Stake
On the other hand, PoS aims also to establish consensus on the blockchain, the overall process remains the same as PoW, but reaching the end goal is totally different.
In the case of PoS, the entire process of creating a block is done virtually, and on PoS based cryptocurrencies, the creator of books is no longer called “miner” but “validator”, in order to become a validator the system automatically selects a candidate based on a quasi-random way depending on the users capital also defined as “stake”.
In general, the bigger the stake the bigger the chances are for the node to become a validator. but choosing the validator depending entirely on the stake will favour the wealthy so it was necessary to add alternative methods of selection, depending on the age of the coins staked, meaning that the longer the coins stay in that deposit, the more likely the possibility to be rewarded by the system.
Another method is Randomising block selection where the validators are selected by searching for nodes including a combination of the lowest hash value and the highest stake since the size of stake is visible to all in the blockchain the next validator or “forger” can be easily predicted.
In order to participate in the process of creating a new block, the coins have to be held as a stake for a minimum of 30 days.
The main advantages of using PoS rather than PoW are that they are environmentally friendly and also cost-effective, electricity and hardware costs are much lower than the costs associated with the PoW protocol. Being less stressful, more people are added to the system creating more nodes and making the system more decentralised.
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