{"id":4401,"date":"2018-01-24T13:39:57","date_gmt":"2018-01-24T21:39:57","guid":{"rendered":"https:\/\/coincentral.com\/?p=4401"},"modified":"2018-08-09T11:32:38","modified_gmt":"2018-08-09T18:32:38","slug":"making-sense-of-proof-of-work-vs-proof-of-stake","status":"publish","type":"post","link":"https:\/\/coincentral.com\/making-sense-of-proof-of-work-vs-proof-of-stake\/","title":{"rendered":"Making Sense of Proof of Work vs. Proof of Stake"},"content":{"rendered":"

 <\/p>\n

Spend enough time in the crypto-community and you\u2019ll witness debates over Proof of Work (PoW) and Proof of Stake (PoS). \u00a0Fans of PoW will argue that it\u2019s the transaction system Satoshi Nakamoto had in mind for cryptocurrencies. \u00a0Those in favor of PoS, on the other hand, will argue that mining is outdated, inefficient, and insecure compared to staking.<\/span><\/p>\n

So you might be wondering, what\u2019s the difference, is one actually better than the other, and why is it better? \u00a0Well like most things here at Coin Central, we\u2019re not here to give you our unsolicited opinions, but we are here to give you some objective information that might help you determine for yourself which proof has best proven its worth.<\/span><\/p>\n

Proof of Work<\/b><\/h3>\n

\"\"When Satoshi Nakamoto created Bitcoin in 2009, he envisioned a currency that would rely on a trustless and distributed consensus system. \u00a0This would allow Bitcoin to be decentralized both in technological and financial terms. \u00a0For instance, when you transact money through a trusted system, a third-party (think banks, credit\/debit cards, PayPal) handles these transactions in terms of debit and credit. \u00a0If Mark sends Sally $100 dollars, the institution will debit Mark\u2019s account $100 dollars and credit Sally with $100. \u00a0All of the money is handled by and within the third party, so none of the transacted funds belong to either Mark nor Sally until they are withdrawn from the system.<\/span><\/p>\n

Bitcoin differs from traditional financial hubs by being trustless. \u00a0This is not to say you can\u2019t trust Bitcoin and blockchain with your money. \u00a0In fact, it\u2019s quite the opposite. \u00a0Bitcoin\u2019s trustless nature allows for a peer-to-peer exchange without the need for a third-party mediator.<\/span><\/p>\n

\"\"<\/p>\n

The traditional mediators are replaced with miners, and these miners work on behalf of Bitcoin holders to see that transaction are successfully processed. \u00a0In order to see that these transactions are approved, miners commit their computer\u2019s processing power to solve the encrypted algorithms within each transaction. \u00a0This is what we mean by Proof of Work.<\/span><\/p>\n

Under a Proof of Work system, miners compete to verify that all the transactions within the candidate block (the block currently being built) are legitimate. \u00a0To do this, they must solve the encrypted puzzles that verify the integrity of the transacted coins. \u00a0The first miner to solve these puzzles receives an amount of the transacted currency, also known as a block reward. \u00a0Once the problem is solved, the transactions create a block that is stored as a public ledger on the blockchain, and the miner announces the solution to the entire network.<\/span><\/p>\n

As you can see, PoW is dictated by competition and computational output. \u00a0Imagine an international math competition wherein a previously unsolved proof (the block) is given to the competitors (the miners). \u00a0Whoever solves this proof first is awarded a prize (block reward), and the solved proof is then posted on the internet for all to see (the block being established in the blockchain).<\/span><\/p>\n

Proof of Stake<\/b><\/h3>\n

Proof of Stake differs entirely from Proof of Work. \u00a0Instead of building blocks through work output, the creator of a block is determined by their share, or stake, in a currency.<\/span><\/p>\n

Under this system, forgers (the PoS equivalent of a miner) are chosen to build blocks based on their stake in a currency and the age of that stake within the blockchain\u2019s network. \u00a0For instance, let\u2019s say you hold 500,000 QTUM<\/a>. \u00a0First of all, allow me to hypothetically congratulate you on your fat stacks. Getting back to the example, under the Proof of Stake system, you\u2019d be more likely to create the candidate block than someone with 100,000 QTUM. \u00a0To go even further, if you had been holding your 500,000 QTUM in the same address for a year, you\u2019d be more likely to generate the next block than someone who also has 500,000 QTUM but who has been holding it in a network address for half a year.<\/span><\/p>\n

\"\"<\/p>\n

To give you another analogy, imagine if your odds to win the lottery increased based on a) how much money you put into it and b) how long you had been buying tickets. \u00a0Now, you won\u2019t make millions of dollars by staking your favorite PoS currency, but you can make some nice passive income on top of your investment gains.<\/span><\/p>\n

It\u2019s important to note that, for a stake to be chosen, it must be held on an address within the coin\u2019s network. \u00a0So if you were holding QTUM like in the above example, you would need to store it in QTUM\u2019s core wallet. \u00a0There are also no block rewards in the PoS system. \u00a0Seeing as there\u2019s no work-centric incentive to outcompete other miners, forgers are only awarded transaction fees.<\/span><\/p>\n

There\u2019s also a marked difference between Delegated Proof of Stake and regular Proof of Stake, but that\u2019s for another article at another date.<\/span><\/p>\n

PoW Coins:<\/b><\/p>\n

–Bitcoin <\/a><\/span><\/p>\n

–Ethereum <\/a><\/span><\/p>\n

–Litecoin<\/a><\/span><\/p>\n

–Monero<\/a><\/span><\/p>\n

PoW\/PoS Hybrids:<\/b><\/p>\n

–Dash<\/a><\/span><\/p>\n

-Stratis<\/span><\/p>\n

–HShare<\/a><\/span><\/p>\n

–Pivx<\/a><\/span><\/p>\n

PoS Coins:<\/b><\/p>\n

–Cardano<\/a><\/span><\/p>\n

-OmiseGo<\/span><\/p>\n

–QTUM<\/a><\/span><\/p>\n

-Ardor<\/span><\/p>\n

[thrive_leads id=’5219′]<\/p>\n

Key Differences and Takeaways<\/b><\/h3>\n

Proponents of PoW will tell you it allows crypto to more effectively function as a currency. \u00a0The PoS model, they argue, incentivizes users to stake their coins for extended periods of time, thereby making them inactive.<\/span><\/p>\n

\"\"<\/p>\n

PoS fans, however, will defend their system\u2019s overall superiority. \u00a0For starters, it solves the problem of energy consumption that Bitcoin has created. \u00a0As more transactions and users are added to Bitcoin\u2019s network, more computing power will be needed to accommodate growth. \u00a0\u00a0The more computing power that is added to the network, the more the hashrate increases in difficulty. \u00a0With more difficulty comes an increase in the amount of work a computer must generate to generate blocks, and this increased output leads to greater energy consumption. \u00a0Bitcoin\u2019s growth and mining difficulty are exponentially tied to energy consumption, and critics see this as an unsolvable issue under the PoW model. \u00a0It\u2019s the reason that Bitcoin\u2019s network alone consumes <\/span>more energy than 159 countries<\/span><\/a>.<\/span><\/p>\n

Proof of Stake also defends against 51% attacks on the blockchain. \u00a0As we\u2019ve seen with the recent Bitcoin Cash and Bitcoin civil war, disproportionate mining power can lead to de facto centralization of a blockchain\u2019s network. \u00a0In order to control a majority of a PoS blockchain, a validator would have to own 51% or more of that crypto\u2019s overall supply. \u00a0So in order for someone to attack Cardano\u2019s blockchain, for instance, they would have to $609,286,157.643 worth of Cardano to do so. \u00a0We don\u2019t see that happening.<\/span><\/p>\n

Both PoS and PoW have their ups and downs, and we\u2019ll be excited to see how the market responds to coins that utilize either system or a hybrid of both. \u00a0One last thing to keep in mind for PoW, however, is that once all a currency\u2019s coins are minted and circulated, block rewards will cease to exist. \u00a0This may incentivize PoW coins to update to a PoS model, but only time will tell.<\/span><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Crypto Fundamentals: What are proof of work and proof of stake algorithms? What\u2019s the difference between them? We’ve got you covered in this guide.<\/p>\n","protected":false},"author":28,"featured_media":4626,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"iawp_total_views":76,"footnotes":""},"categories":[5714],"tags":[5741,5785],"class_list":{"0":"post-4401","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-articles","8":"tag-bitcoin","9":"tag-fundamentals"},"wppr_data":[],"yoast_head":"\nMaking Sense of Proof of Work vs. Proof of Stake - CoinCentral<\/title>\n<meta name=\"description\" content=\"Crypto Fundamentals: What are proof of work and proof of stake algorithms? What\u2019s the difference between them? 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