Proof-of-work, one of the most important processes in protecting blockchains and certifying new blocks, is being challenged by proof-of-stake. Cynthia Dwork, a computer scientist from the United States, and Moni Naor, a theoretical computer scientist from Israel, laid the groundwork for the operation of blockchain technology in 1993.
They go into detail about the consensus that allows for the establishment of new blocks, in particular. Satoshi Nakamoto, the anonymous creator of Bitcoin, put the proof of work consensus concept into practise 15 years later when he integrated it into the Bitcoin blockchain. Despite the fact that this consensus has been in place for more than a decade, it still has several faults, which the proof of stake aims to rectify.
Here is a complete explanation of the information you need to know about the distinguishing qualities of proofs of stake and proofs of work, as well as the differences between the two types of proofs.
Proof of Work
During the process of creating new blocks within a blockchain, proof of work is one of the components of the validation consensus that must be met. A large number of cryptocurrencies, including the most widely used and popular of them all, Bitcoin, are currently using this protocol. Blockchains, which are both databases and trading systems, grow and expand as a result of control, validation, and the ongoing addition of new blocks to their chain of blocks.
In order to accomplish this, the members of the network themselves are responsible for performing the verification and addition tasks. These active members are referred to as “minors” for the purposes of demonstrating their contribution to the organisation.
The Miner is Very Crucial!
When it comes to validating a block of data, mining is an integral aspect of the agreement that must be reached. It is the minor’s responsibility to both check for compatibility with the incoming data and to produce evidence of his or her own work. Proof of work, which is the foundation of mining, consists in computing the hash of a prospective new block from the data of the existing block and a variable known as “nonce.”
Because this variable has the potential to completely alter the value of the hash, the miner must test an enormous number of alternatives in order to have any hope of finding the proper value. This artificial and deliberate complexity of the calculation is intended to make the system as secure as possible. The raw computational power available to the miner, that is, the processing power of his computer hardware, is consequently critical in obtaining proof of work for a given transaction.
To be sure, as the blockchain evolves, the proofs of work become more complex, requiring longer and more energy-intensive calculations to complete. Mining a new block is reserved for the first miner who successfully provides proof of work to the rest of the network. In exchange for this privilege, he or she is rewarded with tokens in the cryptocurrency of their choice.
Proof of Stake
Proof of stake is also a mechanism that is used to validate new blocks on a blockchain, which is described further below. It was created as a response to the inherent shortcomings in the proof of work process. The proof of stake consensus and mining are both based on a complex and energy-intensive calculation point; the active members of the network, known as “minters” (“forgers” in French), put into play a specific quantity of tokens in their possession in order to obtain the right to add a new block to the chain.
The system’s security is ensured by entrusting the validation of blocks to the nodes that have the most valuable tokens available. The truth is that forgers rely on data compliance in order to maintain the value of their tokens in the case of a security breach. As a result, a forger is chosen at random by the blockchain from among the members who have the most tokens to complete the work.
After completing its assignment, the minter is rewarded with tokens, which is equivalent to the proof of work obtained through consensus.
Proof of Work vs Proof of Stake
Proof of work has been tried and tested for more than a decade, and its usefulness in terms of security has been proven time and time again. Proof-of-stake is a more recent consensus method, but it is already attracting the attention of many market participants, including Ethereum, which has announced plans to transition to this sort of consensus. Proof of Work is highly energy-intensive, which results in both difficulties of transactional sluggishness and environmental concerns.
As an alternative, Proof of Stake requires relatively little power and allows for considerably faster data sharing than traditional cryptographic methods. Because the proof of work consensus is based on computer power, it poses a significant problem of centralization. While cryptocurrencies are intended to be decentralised, the race for computer power imposed by the proof of work consensus has resulted in the formation of mining pools that have effectively monopolised the cryptocurrency market.
However, this is a problem that is not totally eliminated by the proof-of-stake structure, which results in an oligarchic-like society in which the wealthiest members continue to become wealthier and wealthiest.
The Bottom Line
Proof of work makes it feasible to adequately safeguard the network: Bitcoin has never been hacked in more than ten years of operation. Only a hacker who controls 51 percent of the blockchain would be able to tamper with it, which is nearly impossible to achieve. Proof-of-stake provides less security because the amount of energy required to attack a network is far smaller than with proof-of-work. In this way, the techniques of proof of work and proof of stake are both used for confirming and securing transactions within a blockchain.
The first method, which has been in use since the inception of cryptocurrencies, has essentially established itself in terms of security, but it results in an exponential increase in energy consumption as well as a concentration around mining pools. The second, more recent attempt to correct these flaws is completely successful in terms of the amount of energy consumed and the speed with which transactions are completed.
It does, however, present a problem of centralization, and its security appears to be more prone to failure. The future will reveal which of the two performs better than the other, especially in light of Ethereum’s transition to proof of stake consensus.