In this post, I compared Proof of Work (PoW) and Proof of Stake (PoS), the two major consensus mechanisms that cryptocurrency blockchains use.
The argument of which of these mechanisms is better has lasted for a long time.
I did my research on the subject and I have shared my findings here.
I’m pretty sure you want answers too. So, let’s get to it!
- Brief Overview Of Proof Of Work And Proof Of Stake
- Comparison Of Proof Of Work And Proof Of Stake
- Which Is The Better Option – PoW Or PoS?
A click on any item above will reveal its details immediately
1. Brief Overview Of Proof Of Work And Proof Of Stake
Here, I’ll explain how these consensus mechanisms work.
Let’s take them one after the other;
a. Proof of Work (PoW)
Though Satoshi Nakamoto made PoW popular in 2008 when he created Bitcoin, the mechanism has been existing since 1993.
Then, it was intended to solve the problem of email scamming but it was not put to use as much as expected.
Just as the name sounds, blockchains that adopt Proof Of Work require that participants or miners do some work to reach a consensus.
The consensus here refers to agreeing on valid transactions that will be added to the blockchain.
When a participant does the given work correctly, he is eligible to add a new block (containing valid transactions) to the chain.
The work to be done is to make a correct guess of an extremely random number.
To do this, miners require a good amount of computational power.
It’s like solving a hard crossword puzzle, only this time, you need a powerful computer, not just your brain.
So, miners compete to be the first to solve the mathematical puzzle and guess the correct number.
Everyone in the network agrees that the first miner to solve the puzzle is eligible to add a new block to the chain.
Upon adding the block, this miner receives a reward, which consists of fees paid for transactions in the block and a block reward in the native token of the chain.
To ensure that no one particular miner keeps getting it correct all the time, the difficulty of the puzzle is increased with every new number generated.
Miners generate the required computing power via CPU mining, GPU mining, ASIC mining, mining pools, etc.
All these mining methods consume a lot of energy. 😞
Examples of blockchains that use this mechanism are BTC, LTC, XMR, BCH, DOGE, DASH, RVN, ZEC, ETC, DGB, ZEN, BCD, and many others.
Let’s talk about PoS…
b. Proof of Stake (PoS)
Did you know? PoS was first mentioned in the 3rd Bitcoin Forum of 2011.
It was raised as a suggestion to improve the network’s consensus method.
Obviously, it was not adopted. 😏
Unlike PoW, participants in a Proof of Stake blockchain do not need to consume energy to solve a difficult puzzle.
Rather, they stake or lock up the blockchain’s native token, which they own to earn the right to validate transactions.
In other words, holding a substantial amount of the blockchain’s asset qualifies a user to add new blocks to the chain.
The length of lockup time and minimum amount of tokens to be staked varies with different blockchains.
Here, participants are called validators, not miners.
They are rewarded from transaction fees when they successfully add a new block to the chain.
And the more tokens a validator stakes, the higher his validating rights.
However, validators are selected randomly to add blocks to the chain.
This makes it difficult for one validator to manipulate the network simply because he staked more tokens.
Blockchains that use PoS include EOS, TRX, ADA, STEEM, DOT, NXT, NEO, NOW, XTZ, etc.
Now, onto the main thing that brought us here, I compared PoW and PoS in the next section.
2. Comparison Of Proof Of Work And Proof Of Stake
To better understand the differences between these mechanisms, I compared them based on the following factors:
- Transaction Speed
- Centralization Tendency
- Innovation Possibilities
- Miners Rewards
- Security of Transaction History
- Node Manipulation
- Environmental Impact
a. Transaction Speed
When it comes to the speed of completing transactions, PoS does a better job than PoW.
While most PoS blockchains complete 1,000+ transactions in a second, some PoW blockchains are still bothered with completing transactions in minutes.
This is because most of the computing power in a PoW is invested in finding a random number and not processing transactions.
But PoS validators are not faced with that stress, they just confirm a transaction and that’s all.
In the table below, you will find a few PoW/PoS blockchains and their TPS (transactions per second).
Check it out_
b. Centralization Tendency
How easily can these consensus mechanisms become centralized? Let’s see…
In theory, anyone interested person can get a computer and join a team of miners (PoW) or validators (PoS).
But in reality, joining either team is expensive and so, individuals may not be able to join even if they wanted to.
What then happens is that these individuals join a mining pool or a staking pool as the case may be.
For mining pools, you will find companies that own ASICS (powerful computers designed to solve PoW math problems) then individual miners join in to validate transactions as an entity.
Afterward, block rewards and fees earned are distributed to all the participants in the pool.
It also means that the bulk of the mining power will rest on the biggest mining pools as they have the majority of the nodes.
And that results in a PoW blockchain becoming a bit centralized.
Also, it increases the risk of a 51% attack.
A 51% attack is an attack on a blockchain by a collection of miners in charge of >50% of the network’s computing power.https://www.nigeriabitcoincommunity.com/51-percent-attack/#a1
For example, the chart below shows the hashrate distribution of Bitcoin mining pools
You did notice the differences in the computing powers (hashrate) of the pools, right?
Similarly, in PoS blockchains, the minimum stake required is usually high.
So, individuals who wish to be part of the consensus process but cannot afford it are left with the option of delegating their crypto to early validators.
Then, they can have a part in their rewards when transactions are validated.
And since the validators with the highest stake can decide the direction the network is headed, it leaves decision-making to a few persons.
Thus making the blockchain centralized in a way.
On the bright side, it reduces the risk of a 51% attack as validators will lose funds if they try to disrupt the network.
Some PoS blockchains and their minimum staking requirements include:
|Terra (LUNA)||20 million USDT|
|Polkadot (DOT)||$40 million worth of DOT|
|Binance Smart Chain (BNB)||$30 million worth of BNB|
|Ethereum 2.0 (ETH)||$67 thousand worth of ETH|
|Dash (DASH)||$130 thousand worth of DASH|
See what I mean?
Another point of concern is the initial distribution of coins.
For PoW, there is usually a fair launch, so, the public can lay hands on as many coins as they can afford to.
This promotes the decentralization of the blockchain.
On the other hand, PoS blockchains opt for a pre-mine.
And as such, the bulk of the coins goes to the company and venture capitalists.
These eventually become the largest validators on the network thereby facilitating centralization.
For a clearer picture, check out these coins and their initial distribution:
I hope you got the gist.
*Notice that Ethereum appeared under PoS and PoW; that’s is because the network is transcending from PoW to PoS in the new version.
Hey, rumor has it that 51% attack is possible on PoS blockchains too. Want to know what I heard? Ask me in the comments section.
c. Innovation Possibilities
Innovation in a blockchain largely depends on how easily it can adopt changes/suggestions for improvement.
In a PoW blockchain, it is difficult to adopt changes because getting all the thousands of nodes in the network to reach an agreement is almost impracticable.
This limits their innovation and causes them to lag behind other blockchains.
Usually, attempts of innovation on a PoW blockchain results in a fork.
A fork is simply a change in the blockchain’s protocol that alters the software used to decide whether a transaction is valid or not.https://commodity.com/cryptocurrency/what-are-forks/#What_Is_a_Fork
It is a lot easier to adopt changes in a PoS blockchain because only a few persons need to agree.
Additionally, most of these blockchains allow users to contribute to their governance by giving room for token holders to make suggestions and vote on those suggestions.
I smell democracy here, LOL
d. Miners Rewards
Both the Proof of Work and Proof of Stake blockchains offer rewards that incentivize users to join in validating transactions for the network.
Additionally, these rewards mean that more of the native tokens of the blockchains are released into the market regularly.
But measures are taken to reduce the size of the rewards over time to maintain the value of their native assets.
Miners in a PoW blockchain earn from transaction fees and block rewards.
Then the block rewards are halved at different intervals e.g. every 4 years.
In a PoS blockchain, validators are rewarded from transaction fees alone.
The corrective measure adopted here is that the stakings of validators who misbehave (e.g. approve false transactions) are slashed.
That is to say, the network burns some of the cryptos they staked thus, reducing their voting rights as well as the number of coins in circulation.
Furthermore, most PoS cryptocurrencies are inflationary which is a way to incentivize validators.
The only problem with that is, these coins eventually drop in value.
Therefore, a validator’s staking may not be worth its initial value 5 months later. Too bad!
And where there is currency inflation, holders may have to pay tax. Our governments could get greedy. 😒
e. Security of Transaction History
Because PoW has a longer block time and smaller block sizes, the blockchains are usually shorter in length when compared to PoS.
It also means that each node in the network can store the entire transaction history.
And this helps to foster decentralization. Cool!
The high speed of transactions in PoS blockchains means that more blocks are added in a short time, thereby making the chain very long.
Most times, these chains are so long that a single node cannot keep them all.
Thus, PoS blockchains rely on external centralized sources like Alphabet and Apple cloud to store their data.
While this helps relieve the load on the chain, it also exposes it to manipulation by an external body.
f. Node Manipulation
Here, we’re looking at how easy it is for a node to manipulate the blockchain.
This is easier for a PoS blockchain since a node just needs to stake the largest amount of coins to effect changes.
Sounds like the rich oppressing the poor 🙄
PoW, on the other hand, is more resilient to manipulation because it is costly to buy and maintain the mining hardware.
g. Environmental Impact
Do you remember why Tesla stopped receiving Bitcoin as a method of payment?
It said Bitcoin mining was harmful to the environment. Hmm…
Apart from that, there are several reports on how mining PoW harms the environment, which is true because it requires lots of electrical energy.
Experts have suggested the use of renewable energy to curb the situation but that wouldn’t do because it also reduces the energy available for the host country.
This was the reason for the banning of Bitcoin mining in Iran.
Again, when a new ASIC is developed, the old one ends up in a landfill. Oops!
PoS blockchains do not consume a fraction of the energy used by their counterparts and so, have no negative impact on the environment.
Stop smiling, PoS has not won yet…
Putting all these factors together, which is a better consensus mechanism?
Find out what I think in the next section.
3. Which Is The Better Option – Proof of Work Or Proof of Stake?
Firstly, none of these consensus mechanisms is perfect. Both have their strengths and weakness.
While PoW blockchains are resilient to manipulation and more decentralized, they process transactions slowly and are costly to maintain.
As for PoS blockchains, though they process transactions faster, they are prone to manipulation and depend on centralized platforms for storage.
Unfortunately, I cannot recommend a mechanism over the other because what seems to be a disadvantage in one turns out to be an advantage for the other.
But what I know for certain is that both mechanisms can be improved.
PoW needs to find a lasting solution to its energy consumption.
Also, PoS should work towards reducing its centralization tendencies.
Or, what do you think?
Talking about improvement, new consensus mechanisms have been created over the years that appear to have a higher scaling potential when compared to PoW and PoS.
- Proof of_
- Elapsed Time
- Direct Acyclic Graph
Get full details on each of them here.
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This is where we’ll draw the drapes in our comparison of Proof of Work and Proof of Stake consensus mechanisms.
I hope it was worth your time.
We established that none of the mechanisms is better than the other and both can be improved on.
Nevertheless, I’d love to know your blockchain preference: staking or working and why?
Let me hear your thoughts in the comments section.
And on your way out, share this post with your friends. Thank you!