Difference Between Proof-of-Work and Proof-of-Stake in Simple Words

Ever since Ethereum announced its shift from a proof-of-work (PoW) model to proof-of-stake (PoS), public interest in these models continues to soar with each passing month. For those without a technical background, however, that update opened more questions than it answered.

In this post, we’re going to offer a jargon-free, 20,000-feet view of what separates these two types of blockchain consensus models.

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Proof-of-Work: The Original Crypto Dream Come True

Bitcoin was not the first project to attempt a decentralized digital currency. What set it apart, however, was the sheer ingenuity of the way it handled the approval and validation of transactions.

A decentralized network, by its very nature, does not have a central server. So unlike Mastercard or Stripe, companies that can verify transactions through their own servers, Bitcoin had to rely on strangers hosting its software to validate all transactions. By validation, we mean ensuring the accuracy of transactional data so people can’t simply add bitcoins to their wallets by hacking the code.

Without going into too many technical details, Bitcoin achieves that by forcing all network participants—as in the people and organizations hosting the Bitcoin software on their machines—to solve cryptographic puzzles.

Every time a puzzle is solved successfully, the miner (the machine that solved the puzzle) gets free coins as its reward for helping validate transactions and update the ledger of Bitcoin.

The catch here is that with each successful solution, the next puzzle becomes exponentially harder.

As more people started solving these puzzles, with more powerful machines launching each year, the difficulty skyrocketed. Today, it’s practically impossible to hack the Bitcoin network due to the sheer amount of processing power required to overtake its consensus system.

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Proof-of-Stake: The Future of Blockchain?

Bitcoin, the most popular proof-of-work blockchain network, has made countless headlines over the years for being a power-hungry project. Estimates have put its power draw beyond that of many European countries. Unfortunately, this is a drawback that makes Bitcoin and any proof-of-work project ultra-secure. So it won’t be changing any time soon.

However, that’s not the only way to keep bad actors from overtaking a blockchain or falsifying transactions. A wonderful example of this is the proof-of-stake model.

Instead of solving ridiculously difficult cryptographic equations, PoS requires all its network members to put up a certain amount of cryptocurrencies as a sort of safety deposit. This is what the “stake” in proof-of-stake means.

Now, if someone tries to falsify transactions or do any unsavory business, the network can automatically confiscate their staked cryptocurrencies permanently. The thought of losing all staked coins serves as a fantastic deterrent for all members.

Needless to say, the absence of immensely-difficult puzzles enables PoS to maintain an incredibly-low energy footprint. In simpler words, it uses a fraction of the energy that a PoW network may use.

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Conclusion

The key takeaway here is that proof-of-work blockchain networks ensure their safety by leveraging endless amounts of computing power. Whereas proof-of-stake networks dissuade any bad actors by having them put up a stake of cryptocurrency assets.

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