Proof of Work vs Proof of Stake for Beginners

A complete beginner's guide to consensus mechanisms

For daily news, reviews, and educational content on all things crypto subscribe to CryptoWendyO on YouTube and follow on TikTok and Twitter

By Wendy’s Whitepaper Contributor: Dragonwolftech

User Level: Beginner

You will eventually hear two terms as you progress in your crypto journey, Proof of Work and Proof of Stake. Proof of Work and Stake are consensus mechanisms used in mining cryptocurrencies like bitcoin, ethereum, etc. Since this article is for beginners, we'll try to keep the concepts as easy to digest as possible but included in this article are links and book suggestions to take you further down the rabbit hole. 

What are the differences between Proof of Work and Proof of Stake?

Bitcoin uses a Proof of Work(PoW) consensus mechanism. Miners attempt to solve complex problems on the Bitcoin blockchain and, in return, be rewarded with bitcoin. The idea of Proof of Work dates back to the early 1990s, first presented by Cynthia Dwork and Moni Naor to defend against Denial of Service (DoS) attacks.

In 2004, computer scientist Hal Finney introduced the concept of Reusable Proofs of Work. With reusable proof of work, a token be use reused in a limited sequential fashion. As Finney put it, this allows proof of work tokens to be used once, then exchanged for new tokens that can be used once again, then exchanged again. Satoshi Nakamoto incorporated this concept in the development of bitcoin, which launched in 2009. 

In the Bitcoin whitepaper "Bitcoin: A Peer-to-Peer Electronic Cash System (2008)," Nakamoto wrote, "The proof-of-work also solves the problem of determining representation in majority decision making. If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of-work is essentially one-CPU-one-vote."

Critics of Proof of Work argue that this form of mining is costly with the equipment, the miners' housing, and energy consumption due to the number of miners needed to run, solving problems to make mining bitcoin profitable. 

Proof of Stake (PoS), on the other hand, the network's miners are chosen by the network. First presented in 2012 by Sunny King and Scott Nadal, Miners are selected based on how much of the native currency (ether) the miner has staked and how long. For example, if one miner has staked 1000 XYZ tokens and another has 800 XYZ tokens, the miner holding 1000 tokens is the most likely to be chosen by the network to mine a block. But if two miners have 1000 tokens but one has held or staked their tokens for a few weeks and the other for over a year, the network will choose the miner who has held their tokens the longest.

Critics of Proof of Stake acknowledge that POS makes mining energy-efficient, but Proof of Stake does nothing to stop unchecked inflation. Also, Proof Of Stake has been criticized as being unnecessarily centralized. That Proof of Stake does not allow for miner consensus, relying on the staking wallets with the most coins staked for the longest time.  

There are thousands of cryptocurrencies in the market. Proof of Works (PoW) remains the most widely used form of consensus mechanism in the industry, with Bitcoin being the first and to do so. Some other Proof of Work blockchains include Bitcoin Cash (BCH), Litecoin (LTC), Dash (DASH), Monero (XMR), and Zcash (ZEC). Proof of Stake (PoW) is gaining popularity, Ethereum (ETH) is changing to PoS with Ethereum 2.0, other blockchains that use Proof of Stake include Binance Coin (BNB), Solana (SOL), Polkadot (DOT), EOS (EOS), and Tezos (XTZ).

To those just getting into cryptocurrency, the issues of Proof of Work and Proof of Stake may seem very esoteric and not necessary to use the technology. Still, it's essential to know how the different blockchains operate and what type of mining solutions they use. Both methods of consensus have their benefits and drawbacks. To have a well-rounded knowledge of blockchain and cryptocurrencies, learning more about Proof of Work and Proof of Stake is highly recommended.

Recommended Reading:

Types of Blockchains: PoW, PoS, and Private by Gemini.com Cryptopedia

Mastering Bitcoin: Programming the Open Blockchain by Andreas Antonopoulos

Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies Is Changing the World by Don and Alex Tapscott

Blockchain for Dummies by Tiana Laurence

Wendy’s Whitepaper Disclaimer: Please be advised that I own a diverse portfolio of cryptocurrency assets, and anything is written or discussed in connection to cryptocurrencies– regardless of the subject matter’s content– may represent a potential conflict of interest. I wish to remain transparent and impartial to the cryptocurrency community at all times, and therefore, the content of my media is intended FOR GENERAL INFORMATION PURPOSES ONLY. Nothing that I write or discuss should be construed, or relied upon, as an investment, financial, legal, regulatory, accounting, tax, or similar advice. Nothing should be interpreted as a solicitation to invest in any cryptocurrency, and nothing herein should be construed as a recommendation to engage in any investment strategy or transaction. Please be advised that is in your own best interests to consult with investment, legal, tax, or similar professionals regarding any specific situations and any prospective transaction decisions.