Proof of stake Vs Proof of work : Which is Better ??? Differences explained !!!

Proof of stake Vs Proof of work : 

 Cryptocurrencies are secure, safe, decentralized, an asset of the century the list goes on and on. All of us have heard of these buzz words but let’s ask ourselves how many would have thought about the technologies which make these words a reality. We seldomly think that how much effort goes into making these blockchains the technology of the century. Let’s dig deeper into it.

For Any cryptocurrency Bitcoin Ethereum or Dogecoin u can think of, runs on a blockchain that has its unique way of functioning which is generally mentioned in its white paper. The blockchain is not owned by a single entity, rather it has several contributors validating each block being forged on the blockchain. All such contributors have the same records of all the entries made on each block which makes it possible to review the entries to avoid any fraudulent entries. For all the nodes to have the same distributed ledger each node has to build consensus amongst all nodes on the blockchain which is done generally in two ways commonly known as “Proof of work” and “Proof of stake” in the language of cryptocurrencies.

You might have read articles online saying cryptocurrencies like Bitcoin use an enormous amount of energy to secure their network. All this energy is used to mine new blocks on the network by cryptocurrency mining rig. Mining these blocks entail a number of miners competing to solve a crypto puzzle by the simple act of guessing the exact hash key of the block being mined using their respective hash rates as weapons for performing iterations. Superior equipment offers higher hash rates which enhance the probability of guessing the right key as higher hash rates mean more iterations per second. This process is termed “Proof of work”. Does a question arise that is this process fair and environment friendly? Unfortunately, it’s none, the odds of finding the right code and getting mining reward is exponentially skewed towards the groups having superior equipment. These computations consume electricity and loads of it. According to Digiconomist, Bitcoin miners alone use about 54 TWh of electricity, enough to power 5 million households in the US or power the entire country of New Zealand. This also leads to a race towards acquiring better and more sophisticated equipment offering higher hash rates. This leads to widespread collaboration and the formation of mining pools to enhance the chances of getting rewards thereby making the blockchain more centralized than decentralized.

What is the possible alternative to this frenzy. In 2011 a Bitcoin talk forum user called QuantumMechanic proposed a technique that he called “Proof of stake”, the basic idea was to let everyone know that competing against each other with mining is wasteful. Therefore, ”Proof of stake” uses an algorithm in which one node is randomly chosen to validate the next block on the blockchain. The process is called validating as opposed to mining. To become a validator, a node has to deposit a certain number of coins in the network somewhat similar to a security deposit. The size of the stake is the most prominent factor in electing the validator to be identified for forging the next block. This is somewhat fairer as compared to the “Proof of work” algorithm as in “Proof of stake” chances of getting rewarded has linear correlation as compared to exponential correlation in the former algorithm. Let’s consider an example to elaborate this further, say Jack deposits $100 in the network and Olivia deposits $1000. Olivia has 10 times more chance as compared to Jack of being chosen to forge the next block. This may not intuitively seem fair as it seems to favor the rich, however in reality it is fairer as compared to proof of work. With proof of stake, rich people can enjoy the power of economies of scale. Now, let’s consider both Jack and Olivia depositing $100 in the network. This condition needs a tiebreaker to select one amongst both who will forge the next block. In such a case secondary variables like the age of the cryptocurrency may be considered which means that if Jack’s staked coins are older as compared to Olivia, Jack will get the chance to forge the new block on the crypto blockchain and vice-versa.

One more question arises, how do one trust that the validating node is not entering a fraudulent entry in the block it forges in his favor or it may leave the job before the block is forged on the network? This is where the role of the stake comes in. The “Proof of stake” algorithm includes the provision of imposing penalties if the block is forged with fraudulent details or the node refuses or fails to complete the assigned task. In such cases, the validators will lose a part of their stake as a penalty. As long as the stake is higher than what the validator gets as transaction fees, they can be trusted to do their job correctly.

So the differences between Proof of Work and Proof of stake are quite significant. Proof of stake doesn’t let everyone mine for new blocks and thus uses considerably less energy. It’s also more decentralized as all participants have a fair probability of selection as per their respective stake in the network which discourages the formation of mining pools. Also, blockchains follow the proof of stake algorithm are typically much faster as no time or computing power is wasted to find out the node which guesses the exact hash function of the block to be mined. In all practicality, there are both pros and cons of both the algorithms and thus many real-world cryptocurrencies exist on each of the algorithms. The biggest of them all Bitcoin exists on proof of work algorithm and Cardano is the biggest one on proof of stake. Both these algorithms are important for any project and can exist in different timelines in the life of a cryptocurrency project. Let’s leave the details for another article on that subject and learn why cryptocurrency like Ethereum is making all-out

 

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