Proof of stake and proof of work, what are the differences?

Proof of stake and proof of work, what are the differences? Knowing the exact meaning of the terms used in DeFi makes it easier to understand and use.

Proof of stake and proof of work, you hear about them often if you are interested in Bitcoin and the crypto world in general, but do you really know what these two terms mean?

In the context of decentralized finance news, it is often talked about because these two systems characterize the big cryptos and are the subject of controversy even within the SEC in the USA.

Proof of stake:

Proof of stake (PoS) is a consensus algorithm used in blockchains to validate transactions and maintain network security. Unlike the proof of work (PoW) algorithm used in Bitcoin, which requires high computing power to solve complex mathematical problems and earn rewards, PoS assigns validation rights to users based on the amount of cryptocurrency they hold and lock in a wallet.

Thus, in a PoS system, validators are randomly selected to create blocks and validate transactions using their own funds. In the event of malicious behavior, these funds can be confiscated, giving validators an incentive to behave honestly to avoid losing their investment.

PoS is considered more energy efficient and environmentally friendly than PoW because it does not require intensive computing power. It is used in many cryptocurrencies such as Cardano, Ethereum 2.0 and Polkadot.

Proof of work:

Proof of work (PoW) is a consensus algorithm used in blockchains to validate transactions and maintain network security. In a PoW system, miners solve complex mathematical problems to validate transactions and create new blocks.

To solve these problems, miners use a high amount of computing power and consume a large amount of energy. In return, they are rewarded with new cryptocurrency units.

PoW was popularized by Bitcoin and is used in many other cryptocurrencies such as Litecoin and Bitcoin Cash. Although PoW is considered secure and resistant to attacks, it is also criticized for its high energy consumption and negative environmental impact.

Proof of stake and proof of work, what are the differences?

The main difference between proof of work and proof of stake is that proof of stake relies on crypto staking, while proof of work relies on crypto mining. These methods add new « blocks » of transactions to the historical record, and both provide a way for users to earn additional crypto.

What can be said in summary:

Proof of work (PoW) and proof of stake (PoS) are two different consensus algorithms used in blockchain technology to validate transactions and maintain the security of the network.

The main difference between PoW and PoS is the way in which blocks are validated and created.

In PoW, miners use computational power to solve complex mathematical problems in order to validate transactions and create new blocks. This process requires a significant amount of energy and is resource-intensive. In PoS, validators are chosen to create and validate new blocks based on the amount of cryptocurrency they hold and « stake » (lock up) as collateral. This means that PoS is less energy-intensive and more environmentally friendly than PoW.

Another key difference is that in PoW, miners compete to solve the mathematical problems and the first one to solve it gets the reward. In PoS, validators are chosen randomly to create new blocks based on their stake, and rewards are distributed proportionally to their contribution to the network.

While PoW has been the dominant consensus algorithm for many years, PoS is gaining popularity due to its energy efficiency and lower resource consumption.