What is proof of stake? Is it better than proof of work blockchains?

Dr Vin Menon
5 min readJan 16, 2023

What is a consensus algorithm on a blockchain? If you are not familiar with the technological nuances, you might not know the answer. A blockchain is a distributed ledger storing information regarding transactions occurring on the platform in virtual blocks. These blocks are highly secure as only the members with permission can access the information. Now, you may ask how this information is added to the blocks.

That is what the consensus mechanism is for. For any information to be added to a block, it must be validated by the majority of the network of participants, aka the nodes. This process makes the database secure and completely authentic as well. Majorly, proof of stake and proof of work are the two consensus mechanisms developers use to validate information for a blockchain.

Bitcoin, the biggest crypto asset, makes use of proof of work, but due to the power consumption issues and time taken to validate a transaction, developers are now trying to shift to proof of stake. Therefore, proof of stake vs. proof of work is a hot topic of debate at the moment. There is a lot of information you need before you completely understand the proof of stake consensus mechanism, so let us dive right into that information.

What Is Proof Of Stake?

Many people will now have the question, what is proof of stake? Proof of stake is a consensus mechanism used to validate and process transactions to add to the blocks, which are then added to the distributed ledger. At first, blockchain technology made use of proof of work consensus, where the validators compete against each other to solve a complex algorithm related to the transaction. The first validator to solve the puzzle is rewarded with some tokens, and the transaction is validated. This mechanism consumes a lot of time and energy, which could be harmful for both nature and the users.

The creation of proof of stake consensus mechanism was prompted by the urge to solve the limitations of proof of work. Blockchains that use proof of stake consensus are getting the advantage of not having competition every time a transaction is to be added to a block. Instead, for proof of stake, nodes called ‘validators’ provide their native crypto assets as collateral to the blockchain network to get the right to verify the transaction and activity, and maintain the records attached to the transactions. The process of locking crypto is also called crypto staking; validators with higher stakes have better chances of being selected to validate a block. Network participants must stake a fixed minimum amount of crypto assets to become validators on a PoW blockchain.

Difference from Proof of Work

Source / Proof of stake vs. Proof of work

In a proof-of-work consensus mechanism, there are miners instead of validators. They compete with others in the network to solve a cryptographic puzzle to verify the transactions. Miners are rewarded with the native token for their services upon winning. On the other hand, the proof of stake mechanism makes validators cross-check the records attached to a transaction. The validator keeps track of all the transaction activities and verifies the transaction. After successfully adding the transaction information to the block, validators are rewarded with a transaction fee rather than the native token of the chain, even though some chains may choose to distribute native tokens as a reward too.

Another major difference in the proof of stake vs. proof of work debate is the functioning cost. For crypto staking, the participants have to invest only once to buy the position of being a validator. On the other hand, to be a crypto miner, you must have highly responsive and super-powered computers for speed and accuracy. Moreover, the hardware keeps changing every year, which means more expenses.

Why is Proof of Stake Important?

Initially, proof of work was the only consensus mechanism used for blockchain technology. But crypto mining consumes a lot of energy which is hazardous for the planet. Proof of stake lowers energy consumption to maintain a blockchain network, however.

PoS is trying to win the PoW vs. PoS battle by replacing the computational power required for mining with the crypto staking process. The validators are selected randomly by the network itself to verify the transactions. So, proof of stake is a very important consensus mechanism for crypto as it reduces energy consumption. Also, the time consumed to validate and add a transaction to the block reduces. So, the importance of the proof of stake mechanism is only increasing.

Security Details of Proof of Stake Mechanism

After you are done with the answer to what is proof of work, you must have questions related to how secure this mechanism is. 51% attack is a very big threat to a blockchain network. Under this kind of network hacks, if the hackers achieve a majority in the number of network participants, say 51% of the total participants, they can overtake the network and therefore pose a risk to the validation mechanism of the blockchain network.

Under the proof of stake consensus mechanism, it is not easy for a group of hackers to perform the 51% attack. Since the mechanism works using crypto staking, the network sets a specific amount to be a validator. The hackers will have to spend a lot of money on becoming the sole validator in the network.

Moreover, the actual validators in the blockchain can choose to discard the changes made by hackers. They also have to freeze or burn away the staked crypto from hackers. Thus, the proof of stake mechanism is highly secure too.

Conclusion

We do hope this article helps you understand what is proof of stake and how it might rank better than proof of work. However, proof of work is still the consensus mechanism with the highest rate of success so far, as it has been around the longest. Both consensus mechanisms come with their set of pros and cons, and ultimately it’s up to you to decide if any one is really winning this PoW vs. PoS debate.

Some networks that use proof of stake are Cosmos, Polkadot, Avalanche, and Ethereum 2.0, post the Ethereum Merge.

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Dr Vin Menon

A blockchain enthusiast and entrepreneur’s musings on the next big revolution since the Internet.