Main differences between PoW and PoS Cryptocurrency Mining
Tags: Blockchain, Proof Of Work, Ethereum, Bitcoin, Altcoins

Following the cryptocurrencies world, you’ve probably heard about Mining, in particular about Proof of Work and Proof of Stake. In this article we’re going to analyse the two basics concepts of PoW (Proof-of-Work) and PoS (Proof-of-Stake) to understand the difference, the pros and cons of both systems used for cryptocurrencies mining.

What is Proof-of-Work (PoW)?

Let’s take Bitcoin as an example, though all we write is valid for any coin which is mined through a PoW protocol.

The Mining Process is used to confirm Bitcoin transactions occurring around the world. All previouses transactions are written in the blockchain, and to make sure everything that is written on the blockchain is true, it needs a decentralized system who confirms that a certain transaction took place at a specific time.

PoW is a protocol designed primarily to prevent and deter cyber-attacks on the network (in fact, it has an exorbitant cost to try to make attacks, much more than what someone would earn from that), and it also allows a distributed consensus of “trustless” transactions.

Having a distributed consensus means that you don’t need the trust and involvement of third parties to send or receive money online, you only need to verify that the transaction is successful by making sure that is written in the blockchain.

In particular, PoW is needed to solve exceptionally difficult math problems, a process called Mining, which is used to write a new trustless transaction group in the blockchain.

W hen a bitcoin transaction occurs, in fact, this is what happens:

• All unverified transactions are “put together” in what is called “block”;

• Miners check that those transactions are legitimate: to doing that they have to solve a complex mathematical problem;

• The first miner to solve the problem of a “block” is rewarded with the bitcoin emission by the protocol;

• Transactions are finally written in the public blockchain.

Finding a solution is basically a game, who first solves first get the reward, and checking whether a solution is correct, is easy and public. Miners are not able to cheat on the system because they employ real resources to process these solutions.

In fact, there is a large amount of energy and specific machinery called ASICs which is needed to mine.

Here’s where the main problem is born with PoW: these resources require a lot of energy to run computer groups which calculate several potential solutions.

From an ecological point of view, this is not the ideal and it leads to Miners to have high energy costs as well as being harmful to the environment unless renewable sources are used.

The fact that you need a considerable amount of computing power, more than the average person can afford, means that the Miners community is becoming smaller and more exclusive.

This is theoretically against of decentralization basic idea underlying cryptocurrencies, but, in fact, looking at the graphic below there are several Mining Pools and having more than 51% of computing power (a figure that would allow an “attack” to the network by the miners) seems frankly very difficult.

What is the Proof-of-Stake (PoS)?

PoS is also a system for validating transactions, so the purpose is the same as the PoW, but the result is obtained in a different way.

Proof-of-Stake is executed by miners who put a number of their coins on a block to check transaction blocks.

The miner is chosen deterministically by the algorithm based on the amount of coins he owns, for long time he owns them, and other factors based on how the algorithm is structured

The coins are also created at the beginning and their number never changes, and when it forges a block, miners earn from fees of all transactions written in the block.

You just have to prove that you have got a certain percentage of all available currencies of a determined cryptocurrency, and in return you will receive commissions.

PoS would be faster and more efficient than PoW system, since technically anyone could become a Miner, and it offers a linear scale relative to the percentage of blocks which a Miner could confirm because it is based on the cryptocurrency quota owned.

Actually, large platforms such as Ethereum have decided to switch to this system adopting this protocol to confirm transactions.

The technological competition on the protocols and algorithms that will define the future of the Internet — which is hoped will be a decentralized future — is just at the beginning. No one can determine who will succeed today because the solutions adopted keep going evolving.

CREDITS

This article was originally written in Italian and translated in English by Stefania Stimolo for NovaMining.