Proof of Work vs. Proof of Stake

 Proof of work and proof of stake are the two most widely used consensus mechanisms to verify transactions before adding them to a blockchain. Verifiers are then rewarded with cryptocurrency for their efforts.

Proof of Work

“Proof of work is a method of verifying transactions on a blockchain in which an algorithm provides a mathematical problem that computers race to solve,” says Simon Oxenham, social media manager at Xcoins.com.

Each participating computer, often referred to as a “miner,” solves a mathematical puzzle that helps verify a group of transactions—referred to as a block—then adds them to the blockchain ledger. The first computer to do so successfully is rewarded with a small amount of cryptocurrency for its efforts. Bitcoin, for example, rewards a miner 6.25 BTC (which is roughly $200,000) for validating a new block.

The race to solve blockchain puzzles can require intense computer power and electricity. That means the miners might barely break even with the crypto they receive for validating transactions after considering the costs of power and computing resources.

Proof of Stake

Some cryptocurrencies use a proof of stake verification method to reduce the amount of power necessary to check transactions. With proof of stake, the number of transactions each person can verify is limited by the amount of cryptocurrency they’re willing to “stake,” or temporarily lock up in a communal safe for the chance to participate in the process.

“It’s almost like bank collateral,” says Okoro. Each person who stakes crypto is eligible to verify transactions, but the odds you’ll be chosen typically increase with the amount you front.

“Because proof of stake removes energy-intensive equation solving, it’s much more efficient than proof of work, allowing for faster verification/confirmation times for transactions,” says Anton Altement, CEO of Osom Finance.

In comparison, for example, the average transaction speed for Bitcoin is at least 10 minutes. Now compare that with Solana, a crypto platform that uses the proof-of-stake mechanism, which averages around 3,000 transactions per second (TPS), making it much faster than the sluggish Bitcoin blockchain.

Also on the horizon is Bitcoin’s biggest rival, Ethereum, is switching fully to a proof-of-stake mechanism. Ethereum estimates its energy usage will decrease by 99.95% once it closes “the final chapter of proof of work on Ethereum.”