In this part of our Free Guide we explain the difference between PoW and PoS.

There are two common mechanisms (consensus algorithms) that can verify blockchain transactions and activities: Proof of Work (PoW) and Proof of Stake (PoS).

Proof of Work (PoW) - Most used and known

Thanks to Bitcoin, Proof of Work is the world's best-known and most widely used crypto algorithm validation method to prevent fraud or weaknesses in the blockchain.

How does PoW work?

Every transaction within a blockchain with PoW must be controlled by a node. Nodes are the infrastructure of a blockchain with PoW and can be any kind of device (usually computers, laptops or even larger servers).

All nodes on a blockchain are connected to each other and constantly exchange the latest blockchain data with each other so that all nodes remain up-to-date. They store, distribute and store the blockchain data, so theoretically a blockchain exists on nodes.

A full node is basically a device (such as a computer) that contains a complete copy of the blockchain's transaction history.
You can imagine that the more nodes there are within the blockchain, the more secure and reliable the network becomes.

A node has three main tasks

Benefits and Disadvantages of PoW

What are the Benefits of PoW?

• The big advantage of PoW is that it provides a very secure transaction system.
• It is a decentralized method.
• You can earn money (that's called mining) by setting up a node point.

What are the Disadvantages of PoW?

• The equipment needed to run a node costs a lot of money. There is a realistic chance that at some point only people who are able to buy expensive hardware will start mining.
• Mining takes a lot of energy. More and more computing power is needed to validate the transactions and add blocks to the blockchain.
• The network is vulnerable to a 51% attack.
• Doesn't allow more scalability.

Which cryptos use PoW?

Some of the more familiar cryptos that use PoW for example are Bitcoin, Monero, Litecoin, Dash, Zcash, Doge, Digibyte e.o.

"Bitcoin actually has the balance and incentives right,
and that is why it is starting to take off."
- Julian Assange

What is Proof of Stake?

Proof of Stake (PoS) is a newer crypto validation method created as an alternative to Proof of Work.

Proof of Stake (PoS) uses randomly selected crypto currency investors as a security to validate transactions. So that can be anyone.

Why was Proof-of-Stake created?

Proof-of-stake (PoS) is designed to ensure that a network can more quickly validate a transaction. It can scale with the growth and use of a network.
It is also more sustainable than the proof-of-work (PoW) protocol because it consumes a lot of energy and computing power, which is no longer feasible in the long run. PoS is also good for the decentralized principle because anyone can join as a node or stakeholder.

What about validators within the PoS network?

Just like with PoW, a validator within the PoS network is a node (node). The difference is that within the PoS network the validators are randomly selected. Validators are owners of the crypto coins that are in circulation. These owners can directly approve as a 'full node' or participate in a 'striking pool' with their crypto coins. The person who approves a transaction receives a predetermined fee for processing the transactions. The way in which the right to validate a node is assigned and the fee differs per crypto currency that works according to PoS.

Earn money with PoS?

Advantages and Disadvantages of PoS

Advantages of PoS

• It has lower electricity costs
• Faster blockchain confirmations
• It's more secure, it gives a network more immunity against cyber attacks

Disadvantages of PoS

• Potential for network management issues as they rely on a small number of validators to reach a consensus on the validity of transactions and blocks. If the validators are not trusted, there is no guarantee that they will not collude, double spend, or censor transactions.
• Vulnerability to attacks: Proof-of-work systems are also vulnerable to attacks because they rely on miners using powerful computers to solve complex math problems to add new blocks to the blockchain. These miners can exploit their position by censoring transactions or double spending coins by mining blocks of invalid transactions.
• Compared to proof-of-work, it is less secure.
• Transaction verification may be influenced by validators with substantial holdings.
• Few PoS cryptos demand that staked coins be locked up for a set amount of time.

Which cryptos use PoS?

Some of the more familiar cryptos that use PoS for example are Cardano, Polkadot, Solana, Polygon(Matic), Avalanche, Atom, Eos, Algorand, Tezos, Celo, Cartesi, Tron, Bnb e.o.

There are a lot more consensus algorithms beside PoW and PoS, although this might be getting a bit too technical. If you like to explore more about this subject we recommend reading this article.

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