Understanding them is a core part of understanding how block transactions are handled at anything beyond a surface level.

Whether you have major ties to a blockchain system or just want to know more about how they work, understanding the differences between proof of work and proof of stake is vital if you want to get your head around blockchain networks as a whole.

About Consensus Mechanisms

Both proof of work and proof of stake are consensus mechanisms, systems that blockchain and crypto networks use to validate transactions.

This system is meant to ensure that there can be no third-party tampering with the system - even if one person manages to cheat the system, the consensus mechanism will kick in and realize that the numbers do not match up.

These two mechanisms have been around for a while but have only gotten more and more noteworthy as crypto has gradually become the most popular use of blockchains. Through proof of stake and proof of work, blockchains can ensure that only legitimate transactions go through.

However, the difference between proof of work and proof of stake is important. They confirm transactions in different ways and can alter how that blockchain handles digital coins, making it important for users of any cryptocurrency's network to know what they are getting into.

Why does a consensus mechanism need to verify transactions?

The cryptocurrency industry is heavily focused on verification and decentralised services, but that means that there is not usually a central authority in the way that a bank service would have one. In theory, block creators could alter the next block and send it along with data that said they were owed fiat currency that they had not actually earned.

POW and POS mechanisms are meant to combat this. These are systems that gather up consensus from multiple sources, effectively checking multiple different sources of information to figure out the "correct answer" to a transaction. If one block has been altered, there might be seven more that can overrule it and keep the transaction how it should be.

What is consensus?

As the primary two consensus mechanisms, proof of stake and proof of work systems both focus on exactly what the name implies: achieving consensus. This means having the majority of different sources of data all agree that a transaction is valid or correcting it if one of the data points has been modified.

When it comes to proof of work/proof of stake vs a malicious third party, these systems can override whatever changes that party made. Modifying the transaction would require getting access to multiple independent parts of the blockchain, ones that are effectively chosen at random and are thus impossible to manipulate.

What is Proof of Work (POW)?

Originally used by the famous Bitcoin network, proof of work is based on the concept of mining cryptocurrency. Rather than just mining for the sake of mining, Bitcoin blockchain miners are actively contributing their computational power to help verify transactions.

When you mine Bitcoin, you are doing proof of work activities. Miners use the computing power of their mining equipment to solve cryptographic puzzles, with each completed proof of work puzzle providing a small block reward.

Why use Proof of Work?

Proof of work is surprisingly powerful and is very heavily focused on improving the network itself. As one of the two main consensus options, proof of work uses network participants to solve complex mathematical problems for rewards while also helping to validate blocks.

This means that the processing power of their devices is giving them mining rewards in the form of Bitcoin "cash" but is also having a positive effect on creating new valid blocks. This stops mining from being a selfish activity that only benefits the bitcoin miners.

Proof of work protocols like this is also very secure. Proof of work enables agreement when verifying transactions, and with all the computers verifying new blocks on a regular basis, it is effectively impossible to create fake cryptocurrency transactions or use similar malicious tactics.

Does Proof of Work have downsides?

The main downside with proof of work is the environmental impact and energy consumption levels. The total power usage needed to process transactions can be very high, and the energy cost of mining on a proof of work network is not always worth it.

It is often not energy efficient to open and verify a new block unless you have dedicated mining equipment. On top of that, the specialized hardware needed to earn anything from proof of work means that it often is not profitable for smaller-scale miners.

Having an economic incentive makes the POW mechanisms much more reliable, but if people are not inclined to use them, then fewer people will mine, and the rate of verification will slow down a little.

What is Proof of Stake (POS)?

Proof of stake was created to work alongside Ethereum's updated form and was meant to fix a lot of the problems that the Ethereum blockchain was having with proof of work. POW mechanisms were too slow to handle all of the transactions going on, which led to fees spiking and interest in mining on the blockchain dying out.

POS uses a stake system where token holders can "stake" their own crypto on the exchange, getting a chance to validate transactions and earn a reward as a result. This is almost like a raffle without the random factor - you stake your crypto, and the person with the highest amount of crypto (or longest-placed stake) verifies that block.

All participating validators get a reward from that blockchain's cryptocurrency, handed out proportionally based on how much they decided to stake. There is a minimum amount that one needs to stake for them to be considered, meaning that staying invested in the system gives the best results.

Why use Proof of Stake?

Proof of stake is much less energy-use-heavy, relying on a consensus mechanism that does not need you to burn energy to start validating transactions. The consensus algorithm used to choose the winners of each stake follows strict rules, so there is no randomness in who gets to validate new blocks.

Platforms like coinpass make it easy to either create pools for a new block - or join existing pools, which is known as delegating. Delegating still gives you rewards from the proof of stake system, meaning that you can still earn crypto even if you are not a consistent winner for each new block.

You also are not sacrificing any computational resources, and you do not need any real specialized hardware to tackle the problem. As long as you have the relevant kind of cryptocurrency and hit the network's minimum limit, you can stake and start contributing to the validation efforts.

Does Proof of Stake (POS) have downsides?

While proof of stake does not have you competing with other miners, you earn rewards based on your stake value and length. POS systems prioritise people who are heavily invested in the network already. This tends to mean that it can take a while for new arrivals to get properly established.

You also need some technical knowledge to stake properly - you can't necessarily just buy crypto and then start staking right away. In some cases, there can also be a risk of you losing some of your stake if a node goes offline (a process called "slashing") or if a "bad block" gets verified. These are rare, but they can happen.

Proof of Work vs Proof of Stake

Both of these consensus mechanisms are useful in their own ways, but understanding the differences in proof of work vs proof of stake can be an important part of choosing the consensus mechanism that works best for you. While it might not be the most important part of picking a new platform, it is still very relevant to many people.

If you have only worked with one previous block consensus system, then it helps to understand the consensus rules of the other. The last thing you want is to be caught out with no way to secure more digital assets because you do not understand how the proof system actually works.

Computing Power Usage

Proof of work requires a lot of computing power to handle effectively, and even a single valid block transaction can consume more than the reward you might actually get. Proof of stake systems uses almost no energy, making them a lot more convenient overall.

This also applies to the hardware you have. Proof of stake POS systems are incredibly easy to enter since they have a low barrier to entry and only need you to own tokens or coins that you can use within the system.

Proof of work relies on good hardware, meaning that it is only a competitive validation method for people who are already set up for mining.

Security

Proof of work can be a lot more secure due to the higher requirements for actually making it work, as well as the energy costs involved.

Very few malicious parties are going to get involved in sketchy mining techniques when they are constantly burning money on energy, meaning that you are more likely to have spotless proof system experience.

Proof of stake is also quite secure but not nearly at the same level. You should not run into any major issues while using it, but it is far from the most secure and safe way to earn money online, and it still has not been fully checked for data protection issues on a larger scale.

Reach

Proof of work has always been the more noteworthy option, despite requiring network participants to offer up more power and effort than proof of stake. A POW blockchain will be much easier to find than one using a POS mechanism, and they will also usually be larger.

Since a POS mechanism will inevitably be smaller-scale, you can't expect as many major real-world examples of it being done at a larger scope. This also means that the true potential and limits of POS mechanisms still are not really known, so there is always a risk that something will change in the future.

Which is best?

Neither of the two systems is inherently better than the other. The proof of stake vs proof of work debate is a constant issue across all crypto exchanges and blockchains, but the real answer is that both work for different situations.

Proof of stake provides things that proof of work does not, and vice versa. Relying on a single consensus mechanics for all platforms would mean that certain blockchains would see major delays or those block creators would struggle to verify everything quickly.

Really, it is important to remember that you are not usually choosing a platform because of the proof system but of other factors. Whether or not a platform uses proof of stake or proof of work is only relevant if you specifically want one or the other.

Are they really that different?

While these different options are going to have unique points regarding how they work, they both serve the same function. They are distinctly different, but that difference only matters to specific groups of people, and the average crypto or blockchain newcomer will not care very much.

If it matters a lot to you, then there is nothing stopping you from looking deeper into the options that you have available. Sites like coinpass can be good sources for finding blockchains and crypto types that support a specific consensus option or even use custom ones that other currencies do not.

Whatever you are looking for, it is important to take things slow and do your research. The more time you waste not looking into the options you have available, the easier it becomes to stumble into using a currency that you do not actually find enjoyable to earn or mine.

Both blockchain fanatics and crypto traders will want to understand the proof systems before they get too involved in a platform or blockchain network. The more you know, the better, so do not hold back on researching these details for yourself.