August 21, 2020

The difference between POW and POS (proof of work and proof of stake)

Blockchain technology and crypto-currencies have been growing in popularity in recent years. A large part of the population that knows about this technology believes that both for the financial sector and for other areas where they can be developed, they represent the future.

There are many elements within this technology to understand its operation and potential, but difficult for most to understand. Computer knowledge, economic knowledge and other aspects are necessary to fully understand what crypto currencies and the technology that accompanies them represent.

The work test and the participation test are two of the many elements that clearly illustrate how most cryptocurrencies work and how they are extracted.

Consensus among community members is very important and can be used to determine which transactions or blocks are actually added to the blockchain. This is because anyone can create a block, but because of its decentralized nature it has to be accompanied by the consensus of the participants.

What is Proof Of Work (POW)?

spike extracting coins and safe with coins inside

The proof of work is used to reach a decentralized agreement, using a mathematical algorithm to determine which blocks are valid to add to the blockchain. In addition, it avoids cyber-denial of service (DDoS) attacks, thus adding security to the network.

This process requires the resolution of complex and variable mathematical problems, where the workers (miners) try to achieve the correct solution in order to obtain a reward from the block chain itself.

To carry out this task, it is necessary a high computational power with hardware resources with the high energy expenditure that this entails, and thus be able to perform thousands and thousands of operations in a very short time.

Most of the major cryptocurrencies use this mechanism, such as Bitcoin, Ethereum, Litecoin and many others. The origin of each of them is the Bitcoin source code itself, although with specific modifications for each blockchain.

What is Proof Of Stake (POS)?

hardware components

The participation test was born as a result of considering several of the negative points of the proof of work such as the high electricity consumption, the constant investment in maintenance and renewal of hardware, physical and conditioned space to house the equipment among other factors.

The most important thing for the proof of participation is the amount of coins in possession, that is, in the wallet itself. This causes an interest in the community to keep their coins in order to obtain a return.

In the new consensus mechanism, users do not mine blocks, they are already mined and a coin supply quantity is set from the beginning. The crypt coins are mined according to certain variables such as participation, random selection of blocks and the age of the coins among others.

Peercoin was the first crypto currency to use this method in 2012, today we have a long list of cryptocurrencies using this mechanism, some of them were already created with the proof of stake system and others have made a migration or are in process, as would be the case of Ethereum with the implementation of the CASPER protocol.

Main advantages of the Proof of Stake

  • The POS algorithms are more energy efficient than the proof of work. It has been calculated that the electricity being used to mine bitcoin exceeds the electricity consumption of countries like Hungary and New Zealand

  • There are no risks or cases of attacks 51% in systems with implemented POS.

  • Less latency, greater scalability and speed

  • You don’t need a large investment in hardware, nor do you need a physical space to participate in the network

Source: TekCrispy