Proof of work vs Proof of stake, Explained.

First, to understand what PoW and PoS is, we will need to define what we call “mining” in the cryptocurrency world. Mining, is a process of validating a block of transactions in a network by solving complex mathematical algorithms to prove the accuracy of these transactions, hence, adding a new block to the chain. Miners who can solve these equations the fastest normally get a larger share of the bounty.

Proof of Work and Proof of Stakes are methods that these validations are reached, and here is how each method keeps every node in the system “clean”.

Proof of Work (PoW)

As the name suggests, PoW, is the validation of the work that has occurred, and proving that it is accurate. Bitcoin, for example uses PoW as a method of validation of accuracy. The simplest way I can explain PoW, is with the analogy of maths class:
In maths class, the student that can not only come up with the correct answer, but also show his workings as to how he came to reach these answers, will gain the reward, as he was the fastest and most accurate. The PoW method employs such a system where miners need to be the quickest to solve these mathematical problems, and show how they reached these answers. The quickest and most accurate will be rewarded with newly minted bitcoins (the current reward is 12.5 bitcoins per block).

The problems with PoW:
• Requires a high amount of electrical power, which increases costs of transactions (inefficient).
• Requires hardware with high computing capabilities, which is very expensive.
• Possibility of miners moving their computing power to mine alternate coins, if the rewards there are more lucrative.

Proof of Stake

Proof of Stake (PoS) is the alternate way of validating transactions on a block. The system will pick the validator (note: not called miners) based on the amount of coins (stake) that validator has and the relative age of that stake.
For example, if ABC Coins employs PoS as a method of validation, each validator will be decided on by the amount of “skin” in the game. The more a ABC coins has, and the longer the validator has held it, the more likely the system will chose him to validate a block of transactions. PoS system allows the building of trustable distributed network with loyal validators. The validators earn a part of the transaction fees. As the validators in the PoS system, has a stake in the network. Ethers, which is the coins that power the Ethereum , bonds the stakes of validators, as kind of a collateral that the validator uses to vouch for the authenticity of a block of transactions. With PoW you know that the transactions are valid because of the work behind it and with PoS, you trust the chain with the highest collateral (or skin in the game)

Here are some of the advantages of the PoS method:
• Does not require expensive hardware (can be run on a laptop)
• Does not require high levels of computing power and electricity
• Loyal validators; as the bigger the collateral a validator has, the higher chance that validator will be picked to validate transactions.
• Quicker validations.

One of the issues raised with the PoS method is that it will give rise to “monopolistic” validators, where a small group of people who own the majority of coins will constantly be chosen to be validators.
Note: There are other difference between the two, but for ease of understanding, I shall keep it as basic as possible, without going into technicalities.

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