Introduction
If you have heard about the process of mining Bitcoin, Ethereum, Dash, and any other popular Blockchains, then you must have heard about the Proof of Work. Both the models Proof of Work and Proof of Stake are called ‘consensus algorithms’ and they were created to confirm the transactions that take place on the Blockchain without the need of a middle man.
When Bitcoin, the first-ever cryptocurrency was built, Proof of work was created to determine how the blockchain reaches consensus. Proof of Work is used for transactions to be verified without including a middle man.
When Satoshi Nakamoto was building Bitcoin, there was no way to be sure that the transaction is valid. Hence, Proof of Work was created. Do you ever wonder why a digital coin is named as a ‘cryptocurrency’? It is because the Proof of Work is based on an advanced form of mathematics called ‘cryptography’ and therefore, Bitcoin and Ethereum are also called cryptocurrencies.
The mathematical equations that are used in cryptography are quite hard to solve and only powerful computers can do that. Once an equation is solved, the transaction is considered authentic. No equation ever is the same!
Proof of Work is an amazing invention but it needs significant amounts of electricity and it can process a very limited number of transactions at one time. To make up for it all, another consensus mechanism, Proof Stake was created in 2012. Peercoin was the first blockchain project to use the Proof of Stake model. Proof of Stake model is said to be fairer because it carries benefits such as more scalable transactions, more equal mining systems, and less use of electricity.
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Proof of Work
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Proof of Stake
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● To add each block to the chain, miners are supposed to solve the difficult equation using their computer processing power.
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● There is no competition as the block creator is chosen by an algorithm based on the user’s stake.
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● In order to add a malicious block, you’d have to have a computer more powerful than 51% of the network.
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● In order to add a malicious block, you’d have to own 51% of all the cryptocurrency on the network.
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● The first miner to solve the equation is given a reward for their work.
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● There is no reward for making a block, so the block creator takes a transaction fee.
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This is how each consensus mechanism works, and how they differ from one another. At present, Proof of Work is the way of mining many cryptocurrencies but there are many issues associated with it. The Proof of Stake model brings solutions to these problems.
There are many other consensus mechanisms coming into existence in the world of Blockchain technology, all with their pros and cons.