Proof of Work Vs. Proof of Stake

Blockchain uses different consensus mechanisms to secure its network. To implement blockchain technology, these mechanisms must be implemented by the developers. The common mechanisms that are used are Proof of Work (PoW) and Proof of Stake (PoS). Both PoS and PoW mechanisms follow different sets of rules and requirements. Let’s understand how they work and the pros and cons associated with them:


How Does Proof-of-Work (PoW) Work?


The miners are rewarded for mining the network block in the blockchain if it uses the Proof-of-Work consensus algorithm. The miners need to solve complex mathematical puzzles in order to claim their reward. The first one to solve the puzzle is awarded. For instance, if the blockchain network uses Bitcoin as their cryptocurrency, the first miner to solve the puzzle is rewarded with a bitcoin.


After the puzzle is solved, a new network block is added to the already existing blockchain network. In order to solve these puzzles, a lot of computational power is consumed.


How Does Proof-of-Stake (PoS) Work?


Proof-of-stake is a consensus algorithm that lets the miner validate the block based on how much ‘stake’ he/she holds (or how many coins he/she has). For instance, if you own 7% of the stake in the blockchain network, you would be allowed to validate only 7% of the block transactions in that network. PoS was introduced as an alternative to the PoW mechanism to reduce the consumption of electricity.


Major Difference Between PoW and PoS Mechanisms in a Blockchain Network

Proof of Work Proof of Stake
The probability of mining a block by a miner depends on the computational work by him/her. The likelihood of validating a block depends on how much stake a person holds.
The first miner to solve the mathematical puzzle receives a block reward. The validators do not receive block rewards. They collect network fees as their rewards.
To add new blocks to the blockchain network, miners must compete and solve challenging puzzles using their computational power. There is no competition between validators. A new block is added based on users’ stake using an algorithm.
The hacker would need to have 51% of the computational power to add a malicious block in the chain. Hackers would need to own 51% share of the cryptocurrency in the network to perform any fraudulent activities.  (practically impossible to achieve).
To optimize the processing power, specialized hardware is required. No specialized hardware is needed.
Common cryptocurrencies that are built on PoW consensus mechanism: Bitcoins Common cryptocurrencies that are built on PoS consensus mechanism: Lisk (LSK), Tezos (XTZ), Cosmos (ATOM),  Cardano (ADA), and EOS (EOS)


The main purpose of implementing these consensus mechanisms is to ensure that the blockchain network is secure. A secure network is crucial for all the transactions in that blockchain. Developers can choose either of the consensus mechanism based on the requirement of the blockchain ecosystem. The choice may depend on the centralization and costs. PoS and PoW both ensure that the system is shielded from fraudulent activities.


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