Proof-of-Work and Proof-of-Stake are methods for securing a blockchain system. Blockchain platforms use both of these methods: they ensure the correctness of transactions and, as a result, the stability and competitiveness of cryptocurrencies. What is the difference?
The idea of proof of work was proposed in 1993 as a promising way to combat spam. With the Proof-of-Work method, a block is added to the blockchain after a node calculates a specific task. The computation process is extremely complex and energy intensive. The Proof-of-Work method pushed the development of powerful equipment. Currently, the annual energy consumption for mining is comparable to the annual electricity consumption of some countries, for example Switzerland.
The idea of the Proof-of-Stake system emerged in 2011, as a result of the development of the blockchain industry and the aggravation of the problem of energy intensity. The Prоoof-of-Stake method takes into account only the balance of tokens on the user’s account. Mining is no longer needed.
Most Proof-of-Stake systems require new blocks to be created and signed by one of several validators. Proof-of-Stake algorithms imply that validators guarantee block validity without requiring all full nodes to check the validity of each block individually.
In the case of Proof-of-Work, coins need to be mined using increasing computing power. In Proof-of-Stake, the already created currency is distributed within the network in various ways, for example, as a reward for the successful validation of transactions.
The main disadvantage of mining in the Proof-of-Work system is the huge volumes of electricity consumption. A significant part of the profit is spent on this. Another cost item is replacing equipment every few months.
Thus, Proof-of-Work is based on an external resource – equipment and electricity. Proof-of-Stake uses an internal resource – user account balances.
51% Threat for Proof-of-Work and Proof-of-Stake
The main resource of each of the methods predetermines their variants of the theoretical threat “51%”. At an early stage in the development of a network, the Proof-of-Work method is vulnerable to attack if someone concentrates more than half of the computing power. In this case, the owner controls the entire platform and can, for example, block the mining of other participants. For Proof-of-Stake, the threat lies in the concentration of 51% of tokens in one hand, which also allows the owner to control the network. However, this is only possible at an early stage in the development of the blockchain platform.
Threat “Nothing at stake”
Opponents of the Proof-of-Stake method believe that its serious problem is the threat of “Nothing at stake” – “empty steak”. This is a theoretical attack, in which 51% of the miners should participate, who build false transaction chains. In theory, under a huge number of conditions, this is possible, since participants in a Proof-of-Stake system can easily create an unlimited number of chains, unlike Proof-of-Work.
Proof-of-Stake proponents point out that the “Nothing at stake” attack is not feasible, since it requires the fulfillment of a number of conditions that are not realizable in practice. It is clear that there has never been a single case of such an attack. However, the deep-rooted fear of “Nothing at stake” among some developers is still stronger than arguments. Thus, theoretical threats are the main subject of disputes between the two sides.
Both methods have their pros and cons. But the main advantage of Proof-of-Stake is energy and resource savings. This new and more advanced method is gradually winning over former Proof-of-Work fans. This is facilitated by the fact that the mining resource on Proof-of-Work has its limit, therefore, hybrid blockchain systems are being created. Many cryptocurrencies first go through the Proof-of-Work stage with mining, and then move on to the Proof-of-Stake method.