Proof of Work and Proof of Stake

Proof of Work and Proof of Stake

One of Blockchain’s highly accepted features is decentralization. No particular entity or network member is held for accountable for validating changes.

Rather, a group or majority have to agree before any changes are made to a new block.

This feature is known as consensus. It’s what classifies most blockchains from standard databases.

Consensus guarantees everyone has an original version of the truth. Your Blockchain’s data must match everyone else’s. else, the whole system crashes.

By using remunerations and incentives, a consensus protocol can allow new blocks without third parties or any centralized authorities.

In this article, I will be focusing on two of the popular consensus mechanisms today such as proof-of-work (PoW) and proof-of-stake (PoS).

Proof-of-Work, or PoW, is the primary consensus algorithm in a Blockchain network.

In Blockchain, this algorithm is used to validate transactions and produce more blocks to the chain.

With the use of PoW, miners compete upon each other to perform transactions on the network and get compensated.

In a network, users grant each other digital tokens. A decentralized ledger collects all the transactions into blocks.

Still, one has to be careful while confirming the transactions and arrange blocks.

This responsibility is carried out by specialized nodes called miners, and the process is known as mining.

The central working principles is a complex mathematical puzzle and a probability to easily prove the answer.

Building the proof of work protocol for obtaining a consensus among devices on a distributed network is the ultimate fulfilment of Bitcoin patron Satoshi Nakamoto.

By doing so, he laid out the foundation for the innovative technology that as such is Blockchain.

Proof of work (PoW) is a consensus protocol that was introduced by Bitcoin and is being used widely by many other cryptos.

As mentioned above, proof of work comes in the form of an answer to a given mathematical problem, one that demands considerable work to arrive at, but is verified to be fit once the answer has been derived.

The only way to resolve these mathematical riddles is with the help of nodes on the network, working a long and random process of getting answers on a test and miss basis. Technically, this could mean that the problem could be resolved on the very first attempt.

However, this is extremely unlikely and practically impossible. The answer obtained needs to be a lower number than the hash of the block for it to be allowed, known as the ‘target hash.’

A target hash is to be considered as a number that the header of a hashed block needs to be equal to or less than for a brand-new block, along with the award, to be granted to a miner.

The lesser a target is, the more challenging it is to create a block. A miner resumes testing several unique values that are known as nonces till a proper one is allowed.

The miner who succeeds to resolve the riddle mines the next block, attaching it to the chain and verifying the transactions in it, and getting the reward connected with the block.

The method involves assuring the miner that every approved block in the chain compensates the miner in the crypto that they are mining.

Which is done via the fees of transaction collected for transmitting currency across the network, as well as any proposed reward.

It assures that miners are incentivized to resume managing a blockchain, as they are being rewarded for doing so.

These compensations are especially significant due to the difficulty of the riddles that are being resolved since the method is pretty costly, in terms of both times taken and the computing power required.

Keeping these miners invested is a vital function of a protocol as they are in a way the foundation that keeps the system running.

Methods such as proof of work are applied so transactions cannot be forged, as the data required to do so is much difficult to produce, yet easily verified.

Proof of work and mining

Proof of work in mining

Moving forward, proof of work is a necessity to define an invaluable computer calculation, also named mining.

This process needs to be completed to generate a new group of trustless activities (the so-called block) on a distributed ledger known as the Blockchain.

Mining serves mainly two purposes:

  1. To establish the legitimacy of a transaction, or bypassing the so-called double-spending
  2. To generate new digital currencies by rewarding miners for completing the previous task.

Different forms of mining explained

The proof of work system is mainly designed to be challenging and demand considerable computing power to guarantee that too many Bitcoins aren’t mined quickly.

This, in turn, maintains a consistent supply and purpose for miners for securing the network. The security of the network is implemented physically by specific hardware.

Proof of work is an infinitely scalable protocol as the hardware and the electricity employed to the power that hardware is confined in resources.

The proof of work protocol administers the problem of Byzantine nodes through nonces and consolidating messages into individual blocks.

Each block has its separate nonce. They are used only once to add in another element of difficulty in creating valid hashes, especially to prevent precomputation and assure fairness.

In spite of having certain merits, proof of work is deemed as a  flawed consensus protocol. One of the main reasons, considering how much energy is spent in carrying out the protocol.

For instance to point out, a single Bitcoin transaction, making use of proof of work, consumes as much electricity an average household uses in two weeks.

As a result, there has been a shift to more progressive consensus protocols such as the Delegated Proof of Stake consensus protocol.

Proof of stake

Proof of Stake (PoS) concept asserts that a person can mine or confirm block transactions in accordance with the number of coins he or she has.

Proof of stake mining

This means that the more cryptocurrencies owned by a miner, the more mining power he or she will have.

Proof-of-Work (PoW) was the very first blockchain consensus mechanism to be introduced and is still one of the most popular choices in getting distributed consensus allowing you to work without having to go to a stranger.

PoW is utilized by the likes of Bitcoin and Ethereum (for now) and numerous other cryptocurrencies.

As powerful as it may be, it too comes with certain disadvantages such as high computation requirements, as well as high energy costs and the struggle of centralization-by-mining-pool.

Once you are aware of PoW and its downfalls, the call for a system like Proof-of-Stake (PoS) becomes more clear.

Proof of stake was formulated as a more practical alternative to the proof of work (PoW) system, to solve underlying issues in the PoW.

Whenever a transaction is started, the transaction data is added into a block with a capacity of maximum 1 megabyte, and then is duplicated across multiple computers or nodes over the network.

The nodes are the governing body of the Blockchain and check the legitimacy of all the transactions made in each block.

To perform the verification step, the nodes or miners would be required to solve a computational puzzle, named as the proof of work puzzle.

The very first miner to decrypt each block transaction puzzle will be rewarded with a coin. Once a given block of transactions has been done and verified, it is added into the Blockchain, which is a transparent public ledger.

In PoS the miner of a new block, known as the forger, is determined in a semi-random, two-part process.

The first factor to be considered in this selection method is a user’s stake. How much of the currency is the user staking?

Every verifier must own a stake in the network. Staking requires depositing a given amount of tokens into the system, securing it in a virtual safe, and using it as a security or guarantee for the block.

The higher a user stakes, the better will be their chance of being chosen since they’d have more to give in the game . Whereas any malicious activities would see them set back by a higher amount than those who stake least.

Methods for Block Selection

For any proof of stake method to run efficiently, there should be a process to choose the user gets to forge the next valid block in the Blockchain.

Choosing the forger based on just the size of their account balance would result in a  lasting advantage for the wealthier forgers who stakes more of their cryptocurrencies.

To solve this issue, several unique ways of selecting the forger have been created.some of the widely used ones are given below.

Randomized Block selection Method

In this method, a formula which searches for the user having both the weakest hash value along with the size of their stake is used to pick the next forger.

As the size of stakes of forgers are public, and each node is able to predict which user will be picked to forge the very next block. Nxt and BlackCoin are examples of two proof of stake cryptos that make use of the randomized block selection process.

Coin Age-based Selection Method

The coin age-based system picks the very next forger on the basis of the coinage of the stake the upcoming forger has put forward.

Coinage is determined by multiplying the number of days the crypto coins have been kept as stake divided by the number of coins that are kept staked.

The cryptos must be those held for a minimum of 30 days here they can bid for a block. Those users who have staked older and bigger sets of coins have a higher chance of being selected to forge the next block.

Once a user forges a block, their coinage is set to zero, and then they have to wait at least 30 days again before they would be allowed to sign another block.

The user is allotted to forge the next block within a given maximum period of 90 days. This limits users with very old and large stakes from ruling the Blockchain whereby making the network much more secure.

Since a forger’s chance to succeed increases the longer they fail to create a block, forgers can be expected to create blocks regularly.

This mechanism as such promotes a well balanced and decentralized forging group.

Peercoin is a cryptocurrency based on the proof-of-stake system which makes use of the coinage selection process which is combined with the randomized method of selection.

The developers of the coin make a claim that this makes malicious attacks on the network much more difficult to carry out, as buying more than half of the coins is costlier than getting 51% of proof-of-work hashing power.

A majority proof of stake coins that pay a certain reward in the form of a transaction fee for confirming transactions along with creating new blocks sets a target interest rate from which users can earn from staking their coins.

In the case of digital currencies where forgers develop new coins, this rate also becomes the highest rate at which the currency supply is increased over time.

And hence my Proof of Work and Proof of Stake guide comes to an end!

Proof of Work and Proof of Stake


I hope by now you might have a good understanding of how each consensus mechanism works, and how they differ from one another.

Proof of Work is the current way how to mine Ethereum, Bitcoin, Dash, and some other cryptocurrencies.

However, you should now be fully aware of the many issues associated with Proof of Work.

This includes the amount of electricity it requires, the centralization of power that mining pools now have, and the threats of a 51% attack.

As of now, no-one knows for sure. As per my opinion, chances that proof-of-work will die off as all inefficient technologies do seems to be more likely, which would make proof-of-stake the next promising system for the future.

But a lot of these depends on your goals as a business and your taste for risk. PoW is battle-tested and in practice at present, so do you choose something you know works or risk a possibly better yet less established model such as PoS?

As with most blockchain technology, there is still some way to go until the perfect consensus model is found, but I believe it’s really just a matter of time.

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