Proof-of-Work vs. Proof-of-Stake: What Is the Difference?

Proof-of-work (PoW) and proof-of-stake (PoS) are two different methods to validate cryptocurrency transactions.
Updated May 25, 2022 at 7:18 p.m. UTC
Crypto Explainer+
Beginner

Mike Antolin is CoinDesk's SEO Content Writer for Learn. He holds BTC, SOL, AVAX, and BNB

If you're new to the world of cryptocurrency, you probably have heard of both proof-of-stake and proof-of-work. These two concepts are essential to cryptocurrency transactions and security. They are key components of blockchain technology and how it works.

Proof-of-stake and proof-of-work are known as consensus mechanisms. Both, in different ways, help ensure users are honest with transactions, through incentivizing good actors and making it extremely difficult and expensive for bad actors. This reduces fraud such as double spending.

To understand what the difference is between proof-of-work vs. proof-of-stake, it helps to know a bit about mining.

In proof-of-work, verifying cryptocurrency transactions is done through mining. In proof of stake, validators are chosen based on a set of rules depending on the "stake" they have in the blockchain, meaning how much of that token they commit to locking up to have a chance to be chosen as a validator. In either case, the cryptocurrencies are designed to be decentralized and distributed, which means that transactions are visible to and verified by computers worldwide.

Computers on the network have to agree on what happened to verify transactions. If a computer tries to manipulate or commit fraudulent transactions on a network, it will be known through the public, immutable nature of the blockchain. Both consensus mechanisms have economic consequences that penalize malicious actors who try to disrupt the network.

Proof-of-Work vs. Proof-of-Stake: Which is Better?

Proof of work is a competition between miners to solve cryptographic puzzles and validate transaction in order to earn block rewards. Proof of stake implements randomly chosen validators to make sure the transaction is reliable, compensating them in return with crypto. Each choice has unique advantages and disadvantages.

Downsides of Proof-of-Work

Proof-of-work requires a significant amount of energy to verify transactions. Since the computers on the network must spend a lot of energy and operate a lot, the blockchain is less environmentally friendly than other systems. Another problem is centralization, as top miners are always competing for rewards. As cryptocurrencies have grown in popularity, a small group of miners has controlled the blockchain.

Downsides of Proof-of-Stake

The main issue with proof-of-stake is that it requires an often enormous initial investment. You must purchase enough of the native token of that cryptocurrency to qualify to be a validator, which is dependent on the size of the network. In theory, people must be wealthy or earn enough money to buy a network stake, leading to an exclusively rich blockchain. As cryptocurrencies rise in market value, this issue could become worse.

CoinDesk - Unknown

Proof-of-work vs. proof-of-stake (CoinDesk)

Final words: Which one should you choose?

Proof-of-stake and proof-of-work both have pros and cons, and it's important to acknowledge that no system is perfect. Every system has its strengths and weaknesses, and which one you think is better ultimately depends on your point of view. In the end, it isn't an either/or choice and both consensus mechanisms will be part of cryptocurrency for the long term.

This article was originally published on May 25, 2022 at 7:15 p.m. UTC

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Mike Antolin is CoinDesk's SEO Content Writer for Learn. He holds BTC, SOL, AVAX, and BNB

CoinDesk - Unknown

Mike Antolin is CoinDesk's SEO Content Writer for Learn. He holds BTC, SOL, AVAX, and BNB

Related stories

CoinDesk - Unknown
A New Chapter of Web3: Solana Unveils Smartphone ‘Saga’; Moody’s Downgrades Coinbase

The most valuable crypto stories for Friday, June 24, 2022.

CoinDesk - Unknown
CoinDesk - Unknown
How Are Institutions and Companies Investing in Crypto?

From putting bitcoin on their balance sheets to setting up shop in the metaverse, the ways brands and institutions are investing in cryptocurrencies continues to expand.

CoinDesk - Unknown
CoinDesk - Unknown
Consensus 2022: Hollywood, Colleges, Conferences vs. Crypto

The state of crypto and economics live from Consensus 2022 in Austin, Texas.

CoinDesk - Unknown
CoinDesk - Unknown
Bitcoin se estabiliza cerca de $21K; inversores esperan evitar otra caída el fin de semana

Los analistas se cuestionan si BTC podrá mantenerse por encima del umbral de $20.000 en un clima de desconfianza entre los inversores.

CoinDesk - Unknown

Crypto Terms

background

Crypto Flashcards & Glossary

View All