The concept of Proof of Work and Proof of Stake is not clear to you? For a public blockchain to exist in a decentralized way there needs to be a system of consensus to validate the transactions and actions that take place on it. The aim of the consensus system is to allow users of the network to agree on the current state of the blockchain without trust between the participants and without a centralized entity that would update a central registry.
In other words, it is the mechanism which allows a decentralized network with a shared registry to agree on the validity and the order of transactions that are being added to the registry. This consensus system is currently in use in all blockchain but can take different forms. And that’s when Proof of Work and Proof of Stake come into play.
What is Proof of Work?
Proof of Work(PoW)is a type of validation consensus. In this system, miners try to be the first to solve a mathematical problem to get to add a new block to the blockchain and earn the reward that goes with it. These mathematical problems are solved by iteration and deduction and there is only one solution possible. These problems are actually very complex and require a lot of computing power to solve them. Which means that miners have to invest in extremely costly equipment or join mining farm to even get a chance to win a block. In PoW, the more computing power you allocate to mining the more chances you have to win a block.
So, if you double you computing power you also double your chances to win a block. Mining equipment on top of being costly in price is also very in energy as mining farms are always on. It is estimated that the energy consumption of Bitcoin mining in the world for a year is equivalent to the energy consumption of Ireland. Not exactly eco-friendly.
What about Proof of Stake?
As opposed to PoW, Proof of Stake(PoS) does not require any computing power to work but to own a certain amount of money or token. So with PoS, your chance to win a block is not proportional to the amount of computing power you can allocate but to the amount of tokens you own. With PoS, we do not talk about miners but minters or forgers. This system is built upon the idea that the people who contribute the most to the network (by owning the most tokens) should logically be more inclined to keep the network safe. If the network is hacked, this would cause the value of the token to considerably drop.
Proof of Work is thus a much slower and high energy system than Proof of Stake, but both have their pros and cons. Indeed PoS might become the future standard for consensus as Ethereum is set to switch from a PoW system to a PoS system in its next update Serenity.
Do you think PoS is superior to PoW? Will it become the next standart for consensus validation just like Ethereum seems to be hinting at?