Proof of Work (PoW) and Proof of Stake (PoS) are two different ways to secure and validate transactions on a blockchain network. Here is a quick guide on how they work, and the pros and cons of each.
Proof of Work
With Proof of Work, miners run software on their computers, which harnesses their hardware's power to solve complex math equations.
The first miners to solve the cryptographic problems have the right to add a new block of transactions and are rewarded with crypto for it.
Miners are heavily incentivized to put their best mining rigs together for maximum rewards.
Once the block is authenticated, it's added to the blockchain.
Proof of Work offers a high level of security. Since the PoW process is so resource-intensive, it's difficult for any miner or group to command that much power.
Without it, the Bitcoin network could be vulnerable.
The best example is a 51% attack, in which a mining group takes a majority of the network's computer power.
Once they gain control, bad actors can manipulate blocks and take advantage of the system.
Proof of Stake
With Proof of Stake, validators must lock up, or "stake" cryptocurrency they can't spend.
Then, the blockchain uses the locked-up crypto to secure the network.
PoS is based on the consensus mechanism. Consensus mechanisms make sure that only legit transactions get added to blocks.
Validators on a PoS network are chosen randomly by the network to propose new blocks.
They are also randomly grouped into committees of nodes, which change daily.
Multiple computers running blockchain software check among themselves to confirm things are "true or false."
Unlike proof of work, earning rewards isn't based on computing power and doesn't consume as much energy, so there's no need for fancy hardware.
Things to Consider
The biggest drawback for PoW is the energy usage and the potential financial burden.
Mining has sparked a huge demand for graphics cards, causing shortages and price increases.
For maximum gains, PoW miners must keep their operating expenses as low as possible.
The main downside of PoS is stake centralization issues. PoS systems could favor investors with more tokens over those with fewer assets.
Another issue for some PoS blockchains is illiquidity. Sometimes, users cannot access their staked assets until a lockup period ends.
Wrapping Up
Popular cryptos like Bitcoin, Bitcoin Cash, and Litecoin operate off PoW. Ethereum, BNB, and Cardano are popular examples of cryptos using a Proof of Stake system.
If you have money in any of these coins, you should always keep up with price changes, updates, and security breaches.
If you're looking for an in-depth explanation of PoW and PoS, check out this conversation here.
And stay vigilant when protecting your crypto! Use FLOW to support focus and concentration throughout your day.
