Tradeoffs and advantages of Proof of Stake and Proof of Work
There are two primary methods to secure a blockchain today: Proof of Stake and Proof of Work.
Both methods can provide similar levels of security, but come with tradeoffs.
Proof of Work (PoW) is the type of consensus mechanism most often associated with Bitcoin. Mining nodes must do work (solve mathematical problems) to earn the chance to produce a block on the blockchain. By proving that they have the computational power to achieve consensus within the network, a mining node is able to participate in broadcasting transactions. In this way, the ledger of transactions can be spread across multiple mining nodes and avoid attacks from one party overtaking the network. For their efforts, the miners receive an amount of Bitcoin emitted into circulation.
Proof of Stake (PoS) by contrast, typically allows holders of the network’s cryptocurrency to delegate to one of the network nodes by staking their asset. Then the nodes which meet the requirements of staked crypto are able to become active validator nodes, approving blocks on the blockchain. This is a much faster method of consensus than Proof of Work without the time needed to do complex computations.
Proof of Work is considered a slower method of validating the network compared to Proof of Stake, and it also requires a great deal more resources and electricity from miners.
Proof of Stake allows many more individuals to participate in the network, governance, and earn rewards from block production at no operation cost to the delegator, other than locking their assets with the node. Validator nodes are able to operate with lower costs because they aren’t expected to compete with computation power: instead, they want to attract delegations to remain active. Many are encouraged by protocols moving to Proof of Stake because it uses less electricity to operate, and therefore has less environmental impact. For example, it’s estimated that Ethereum moving to Proof of Stake would reduce its energy use by 99.95%.
The significant advantage of Proof of Work is being robust against attacks. The energy expended by miners is proof of their willingness to keep consensus within the network. A single miner who wishes to steal Bitcoin, if he were able to be the first to solve the computation, would not be allowed to broadcast a false transaction because all other miners would audit and reject such a change.
Delegation such as Proof of Stake networks, however, comes with risk of the network being “bought,” since validator nodes are incentivized by attracting delegated assets. Entities might try hoarding tokens if they want to gain a larger share of the Proof of Stake network. The trade off for security vs. speed and efficiency should be considered when judging different mechanics of blockchain networks.