What is Proof of Work (PoW) and Proof of Stake (PoS) and what are their differences?
Will the PoS algorithm replace PoW? The history of the PoW algorithm dates back to 2008; That is, when Satoshi Nakamoto published the Bitcoin white paper. PoW was adopted by many blockchains; Because it protects the network from various attacks including DOS attack. The PoS algorithm was introduced in 2012 by the digital currency Peercoin as an improved version of the PoW algorithm. Since then, the PoS algorithm technology has been improved many times by researchers and developers. When comparin
What is Proof of Work (PoW) and Proof of Stake (PoS) and what are their differences?
In this article, we are going to explain the differences between proof of work and proof of stake, or PoW and PoS.
In fact, Proof Of Work is a protocol whose main purpose is to prevent cyber attacks, including DDoS.
The main idea of this protocol was introduced by Cynthia Dwork and Moni Naor in 1993. The term POW or Proof of Work was also published by Markus Jakobsson and Ari Juels in a paper in 1999, and this idea was applied in 2008 bythe Bitcoin digital currency.The system of distributed agreement or consensus means that when sending or receiving information (cash) from any person, there is no need to trust a third party service such as a bank. In the traditional payment method,you need to trust a third-party service accepted by both sides of the transaction, such as banks, Visa card,MasterCard, etc., which keep the history of transactions and the amount of your balance.In the way that Bitcoin and a number of other digital currencies introduce, everyone has a copy of the distributed ledger and can directly write their approved information on this ledger.
Proof of Work (PoW) and Mining
To know more about PoW or proof of work, you need to learn about mining. To perform mining operations, a group of transactions must be registered on the ledger. Mining operations are carried out for two purposes:
Confirm transactions and prevent re-payments Creating a digital currency that is given to him by the Miner as a reward for the work done in the past.
The following steps are taken to complete the transaction:
Transactions are combined in a block.
Miners confirm transactions that are legitimate in the block.
Next, miners must solve a mathematical puzzle, which is known as a problem in PoW.
The prize is awarded to the first miner who can solve the problem of each block.
At the last stage, the confirmed transactions are stored on the public blockchain.
All miners compete to be the first to solve this math puzzle.
To solve this mathematical puzzle, a certain degree of difficulty is considered, which creates a competition between miners and causes more computing power to be added to the network. As the mining operation becomes more difficult, the miners are actually forced to increase the efficiency and effectiveness of the process, and this causes the economic balance of this network to be maintained.
What is Proof of Stake (PoS)?
PoS or Proof of Stake is actually another way to validate transactions and establish a distributed agreement. The purpose of proof of work and proof of shares is the same, but the process of achieving this goal is different. The main idea of PoS was proposed in one of the forums in 2011 and the first digital currencies that used it were Peercoin, Nxt, Blackcoin, NuBit, Qora, Nav coin. Unlike PoW, in which miners were rewarded for solving a mathematical puzzle with the aim of confirming and creating a new block, in PoS or Proof of Stake, the creator of the new block chooses a certain way depending on the amount of his capital and uses this capital as shares or It is called Stake.
So there is no reward and miners only receive transaction fees. Of course, it should be noted that the word Forgers is used instead of Miners in the PoS system.
What is the difference between proof of work and proof of stake?
1- How it works
The difference in performance is the first thing to note about the difference between Proof of Work and Proof of Stake. Undoubtedly, the Proof of Work algorithm is one of the oldest consensus algorithms. PoW consists of a set of transactions in a mempool, and miners must verify the validity of the transactions by solving a cryptographic equation.
Proof of Stake or PoS algorithms do not rely on solving mathematical puzzles. This algorithm selects validators randomly according to their stake contribution in the network. In this algorithm, extraction has no meaning and no currency is created by the extraction method.
2- The amount of energy consumption
The difference in energy consumption is another difference between proof of work and proof of stake. In the proof-of-work algorithm, only one node can enter the details of transactions into the ledger and update it with more power and speed. Miners have to solve complex mathematical functions (called hashes) to find a random number to get permission to create a new block and add it to the blockchain.
This process is done with the help of specialized ASIC hardware machines that consume a lot of energy. At present, the energy consumption of Bitcoin alone, excluding other PoW networks, is comparable to average countries such as Norway or Argentina.
In fact, if Bitcoin were a country, it would be in the top 30 countries in the world in terms of energy consumption!
According to Cambridge University researchers, BTC's annual energy consumption is about 121 terawatt hours (TWh). According to this report, 39% of the total hashing energy consumption comes from renewable energies.
But in the proof-of-stake algorithm, the need for powerful and high-energy hardware is gone. In PoS networks, there is no competition based on energy consumption to create a new block. However, miners in PoS must always keep their systems and internet connection active, which of course consumes a lot of energy. Compared to PoW, blockchains that use the PoS algorithm require much less energy.
3- The amount of participation in the network
Users who intend to enter networks that use the proof-of-work model, first of all need a large amount of capital to purchase very expensive mining hardware. The higher the investment, the higher the chance of creating a new block; Therefore, it can be said that those who have already bought powerful mining equipment or had thechance to buy new technologies and updated versions of ASIC or GPU, have more chances to mine in PoW networks.
But in PoS-based networks, all users who have a specific token can participate in a consensus algorithm; As a result, in such networks with fewer obstacles and restrictions, any user can be a validator or a block producer.
Projects that use staking pools like Cardano or Polkadot help users to easily assign their tokens to some well-performing pools or validators. The conditions for entering pools or assigning capital to lenders in PoS networks are such that users must have a certain number of tokens and place them as shares in the network for a period of time.
4- Algorithm security
Security is the most important concern in various blockchains. In a blockchain network that works based on PoW, if a fork happens, miners must work on the old blockchain or migrate to the new and modified blockchain.
Creating different forks is a big economic loss; Because it causes a lot of fragmentation in the network and society, but in the proof of stake protocol, there is no limit for validators, and participants do not need to increase their stake to validate transactions in multiple versions of the same blockchain.
5- Reward rate
Which consensus mechanism is more suitable for miners in terms of reward rate? In PoW consensus, the block reward is in the form of a new token that is awarded to the miner for verifying and creating each block, but in the proof-of-stake protocol, the reward is in the form of transaction fees or network fees to validators that are distributed across different networks. Is different.
In the Bitcoin network, miners receive a reward for each block mined. This reward includes a transaction fee and a fixed fee for a new block. This amount is halved once every 4 years after a certain number of blocks have been mined in an event called halving.
By holding this event, the supply of Bitcoin will decrease over time; As a result, the number of digital currencies
that are given as rewards to users is halved, or the price of Bitcoin is doubled, or transaction fees are increased; Otherwise, miners will not receive any profit from mining and will be forced to leave the network.
Why does Ethereum want to use Proof of Stake?
In PoW, miners need to spend a lot of energy. For example, in 2015, to perform a Bitcoin transaction, the electricity consumption equivalent to 1/57 of an American family is needed. This energy cost is paid with fiat currencies and this will cause the value of digital currencies to decrease.
The Ethereum community is looking to solve this problem and has provided a solution based on PoS and claims that this method is cheaper. Ethereum will soon change its algorithm with the launch of the Ethereum 2 project.
But is proof of stake really more secure than proof of work? In fact, due to the high energy consumption of the PoW system, planning to attack it is very expensive, and the amount you have to spend for stealing is more than the amount you get from stealing. With these interpretations, hackers do not have the motivation to attack the PoW system, but in the PoS system, the cost of planning an attack is low.
To solve this problem, the creator of Ethereum introduced the Casper protocol. Also, in this protocol, if a mistake is made by the verifiers (miners), the entire amount pledged by the person who made the mistake will be charged for the mistake.In fact, the creator of Ethereum announced in the introduction of the Casper protocol that each validator must invest a certain amount for cooperation. Also, if there is a violation, they will lose this amount.
Will the PoS algorithm replace PoW?
The history of the PoW algorithm dates back to 2008; That is, when Satoshi Nakamoto published the Bitcoin white paper. PoW was adopted by many blockchains; Because it protects the network from various attacks including DOS attack. The PoS algorithm was introduced in 2012 by the digital currency Peercoin as an improved version of the PoW algorithm. Since then, the PoS algorithm technology has been improved many times by researchers and developers.
When comparing PoW and PoS, we should also consider the application of each algorithm; For example, many smart contracts are best implemented with PoS cryptographic blockchains. If an algorithm can solve the triple challenge of blockchain, i.e. scalability, security and decentralization, it can be a suitable alternative to the PoW algorithm, which has many challenges in the field of scalability. Currently, networks that use the PoS algorithm have the ability to perform more transactions per second.
As the number of users increases, the scalability in the first layer of Bitcoin and other highly secure PoW blockchains will be greatly improved. However, it is still unclear whether the PoS algorithm can replace PoW or not
Jerard bartez
