Throughout the life of cryptocurrencies, an ongoing debate remains about which would be better. This is explained with a ‘Proof of Work’ model or a ‘Proof of Stake’ model. While many believe that a PoW model works best and vise versa, the goal in this article isn’t to persuade you which is a better system. The goal is to describe both systems in detail. Hopefully this will shine a light on how both operate in the cryptocurrency world. This is a brief introduction to both Proof of Work (PoW) models, and Proof of Stake (PoS) models.
‘Proof of Work’ (PoW):
For the sake of simplicity, we’ll be using Bitcoin as an example. Bitcoin will only ever have 21,000,000 coins, with the number of coins mined decreasing as the years go on. To ‘mine’ a coin is to essentially put it into circulation while at the same time approving transactional hashes. But mining is just too easy. There needs to be an objective difficulty in mining these coins, in addition to a reward for miners. Miners are rewarding by receiving Bitcoin themselves, although the amount varies depending on the situation. The settings for Bitcoin are adjusted so that a new block is mined by generating a valid hash every 10 minutes.
Similar to the gold rush, mining survives by fostering competition among miners. On average someone will succeed every 10 minutes, but who exactly is anyone’s guess. This has lead to giant corporations plunging into Bitcoin mining, with the hope to have the larger share of the mining potential available, and thus a higher chance of success.
As you can imagine, huge mining pools require huge mining rigs. They also come with a gigantic electricity bill. According to Digiconimist, the estimated power use of the Bitcoin network is 30.14TWh a year. This exceeds the energy usage of 19 other European countries. Many have pointed to the environmental and energy waste as a reason to transfer to a Proof of Stake system, while other argue that the existing protocol simply needs widespread adjustment.
‘Proof of Stake’ (PoS):
‘Proof of Stake’ is a proposed alternative to ‘Proof of Work’. Similar to (PoW) the goal remains the same: To approve valid transactions on the network while ensuring double spend prevention. With ‘Proof of Work’ the likelihood of mining a block increases based on the work completed by a miner. With ‘Proof of Stake’, the ability to mine depends on the amount the miner already holds.
It’s for this reason that Ethereum’s Vitalik Buterin has suggested moving to a ‘Proof of Stake’ model for the Ethereum network.
Many others cite the enormous environmental danger a (PoW) system has. The potential to use so much electricity for something that can be done alternatively is a big deal to the more environmentally conscious. A ‘Proof of Stake’ would eliminate this danger because it would not require an increasing amount of electricity longterm.
With all of that said, it remains an ongoing debate in the cryptocurrency world about whether a ‘Proof of Work’ or a ‘Proof of Stake’ model would be better. While promising additions like Ethereum’s ‘Casper‘ have yet to be implemented, the truth is we just have to wait and see.