Crypto Academy Season 3 Beginners' course - Task 4: Different types of Consensus Mechanisms
What is the difference between PoW & PoS? Advantages & Disadvantages? Which one is better in scaling Capacity? Examples?
Difference between PoW and PoS.
The term " Proof of work" Was coined by Markus Jakobsson and Ari Juel but the concept was first put in use by Cynthia Dwork and Moni Naor.
Proof of work is a consensus mechanism put in use in cryptocurrencies like Bitcoin, Ethereum etc to verify and validate the transactions and record the validated transactions on blockchain, so as to prevent double spending, denial of service (DoS) attack and other malfunction in services. All this is done by solving Complex cryptographic mathematical problems by making use of the computing power of the computers and other powerful devices and that is known as "Proof of work". One thing we need to understand here is that proof of work is not in place to give proof of transactions but it is in place to validate the real transactions and prevent spam attacks by making use of computational puzzles.
Theoretically it seems difficult to understand but let me try to simplify it with help of Bitcoin as example .The consensus mechanism in place to validate transactions is proof of work. When someone makes any transaction on the Bitcoin blockchain, it is not directly recorded on the blockchain rather it is added to unverified Pool of transaction. Then the miners validate the transactions by solving Complex cryptographic mathematical puzzles having a unique solution for each transaction. The Miner who solves the puzzle first is rewarded a part of Bitcoin for this tedious work.
Miners do not solve these problems manually but they make use of powerful computers with very high computational power to solve these puzzles. After solving, the transaction is distributed across the public ledger for validation by other nodes after checking. This system of consensus mechanism is known as proof of work.
Proof of stake
Proof of stake is a consensus mechanism adopted by some altcoins to circumvent the shortcomings of proof-of-work. The mining rights in blockchains that follow proof of stake mechanism is proportional to the share of token holded by miners. Theoretically we can understand it like this, if there are two miners, one of them holds 5% of the coins and other stakes 10%, they will therefore get chance to mine 5% and 10% of the blocks respectively. This consensus mechanism is known as proof of stake. PoS was first adopted by Peercoin.
Advantages and disadvantages of PoW and PoS
PoW makes use of computational power to validate transaction where as PoS makes use of percentage Stake share of holders.
PoW consumes huge amount of electricity while as PoS is energy efficient mechanism. In addition, PoS is more ecofriendly than PoW.
PoS is at less risk of attack by miners because attackers are not at advantage becuae of compensatory mechanism but in PoW there are chances of attacks by institutions holding 51% computational power.
PoW ensures better degree of decentralisation than PoS.
Because of staked coins price dynamics of tokens is well controlled in PoS than PoW.
PoS coins have better scalability than coins based on PoW.
PoS is followed by DASH, NEO, TEZOS , PEERCOIN while PoW is followed by BTC, ETH , MONERO, Litecoin etc
Scaling capacity
As for scaling capacity is concerned PoS is better than PoW. Below are some of the examples
| Coin | Transaction speed (Per second) | |
|---|---|---|
| BTC | 3-7 | |
| Peercoin | 8 | |
| ETH | 30 | |
| DASH | 50 -60 | |
| NEO | 1000 | |
| EOS | 2800 |
So we conclude that most of the coins that follow proof-of-stake mechanism have batter scalability then the coins that follow proof of work mechanism.