Difference between: Proof of work and Proof of stake
If you are just starting out in the crypto universe, you may have heard about these two consensus models of blockchains. Some argue that proof of work is better and others proof of stake, so that you can draw your own conclusions, we will detail and explain the differences between these two consensus mechanisms that generate many discussions.
This discussion always comes up, many have divergent opinions on this subject and we will take advantage of the updates that are happening in Ethereum to talk about this topic. If you have never heard of a consensus mechanism, now is the time to learn.
What is the consensus mechanism?
It is a mechanism used to establish a common agreement on the validation of the data inserted in the transactions, because it is a distributed and decentralized network, it is necessary that the network validators reach an agreement and validate the information inserted, providing security and integrity necessary for blockchain transactions.
The best known consensus models are the Proof of Work and Proof of Stake, below we will learn about both models.
What is Proof of Work?
It is the first model and the best known, consensus proof where miners put their computing power to work and validate transactions. They receive incentives for each block mined, and it is a more expensive, time consuming, and less scalable model. In the proof of work, the algorithm must solve a kind of mathematical puzzle and point out the solution, after solving this equation the block is validated and inserted into the blockchain and can start a new block.
Advantages:
- PoW is neutral, no cryptocurrency investment required;
- PoW has been running for many years, it is a tested and validated model, proving secure for ages;
- It is implemented much more easily;
Disadvantages:
- PoW uses a lot of energy, which generates discussions regarding the environment;
- Needs a large initial investment in equipment;
- You can create conglomerates of mining companies, which can affect decentralization;
What is Proof of Stake?
It can be translated as proof of participation, the validators form pools leaving their cryptocurrencies available to validate transactions making the network even more decentralized because it is not necessary to invest in equipment and energy as in the proof of work model. Because it is a cheaper model and with the possibility of having many more validators, it is highly scalable. In proof of stake all participants receive rewards proportional to their participation.
Advantages:
- PoS is easy to create a group of participants without large investments;
- PoS is much more decentralized by allowing more participants within the network;
- It requires much less electricity to run, thus closing the issue created about the environment;
Disadvantages:
- It is a newer method, therefore less tested, and can cause insecurity for users;
Conclusion:
One of the major updates the crypto universe has ever experienced was Ethereum’s The Merge. It took early September and the migration from Proof of Work (POW) to Proof of Stake (POS) was a success, now the validation of network transactions occurs through validators and no longer through mining.
This will be the real test for proof of stake, Ethereum is the second blockchain in market value. It’s worth following closely, but it looks like we won’t have any problems with this change.
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Founded in March 2021, Uniera is a crypto exchange and manager dedicated to the portfolio of professional investors and family offices. Conceived by partners Caio Villa and Gustavo Albanesi, the company seeks to become the the main access route for investors to the best projects in the digital assets market. With tokens audited by Grant Thornton, one of the largest and most respected in the segment, Uniera seeks to raise the level of reliability in cryptocurrency trading in the country.
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