The differences between proof of stake and proof of work

Crypto has become a mainstream attraction over the past few years. With this, there are also some crypto models for transactions that have made the rounds. There is still a debate between the proof of stake and proof of work models, so let’s talk about the characteristics of both.

When Satoshi Nakamoto created Bitcoin, they had to find some way for the transactions to be verified without a third party. Fiat currencies are known for having third parties that can interfere with the transactions that are made by people. Of course, that is not something that Satoshi wanted to affect their innovation.

Imagine someone earning your free CSGO skins and then someone else takes it away from you. Satoshi wanted to prevent double-spending caused by fees sanctioned by other organizations which is similar to this. Nowadays, crypto is known as safe when it comes to its decentralized nature as it is not governed or regulated by an authority.

The Proof of Work system

They created the Proof of Work system which is used to determine how the blockchain reaches a unanimous decision. It uses cryptography and an encryption method that gave assets like Bitcoin and Ethereum their namesake. Cryptography uses equations that are so difficult that only powerful computers can solve them. 

The big setback that people talk about with the PoW system is that it requires large amounts of power to run it. It is an amazing innovation but with the electricity that it consumes, there are only a limited amount of transactions that can be encrypted. This is why there are many mining machines made specifically for crypto—cooling systems included.

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The environmental effects that it poses are what people are worried about. It is nice to have something that can be made from sheer computing power but at what cost? If people are not aware, they will damage the environment and that is what people want to highlight when it comes to the problems that the PoW system presents.

There are also some limitations to the transaction speed which has irked so many people over the years. The power that is used is limited which means that there will be some quick transactions but it will slow down over time when computers heat up or the energy runs out. You might know of some crypto miners who have cold setups to make sure that the PC or multiple PCs are running at optimal speeds.

People hope that they can improve on this system as some changes can still be done. However, some people prefer a complete overhaul of the system which will have to be a new model. This is where the Proof of Stakes system comes in as an alternative and even a replacement for it. 

The Proof of Stake system

Proof of State was created in 2012 by Scott Nadal and Sunny King. During its launch period, both of them said that Bitcoin and the PoW model had to use $150,000 worth of power every day. That is an astronomical amount which is alarming enough for people to limit the costs. 

If they can prevent that, you can expect that people will move away from the PoW system. However, PoS has struggled to cement itself as the proper system to use which is why there have been limited changes.

If you are looking for a crypto that uses the PoS system, look no further than Ethereum. When it comes to big crypto, ETH is the second-most popular one after Bitcoin. They don’t have to use the PoW system as they use the alternative. 

PoS works for ETH as they don’t need to use large amounts of computing power. They’re used randomly and aren’t competing with each other. Block creators are randomly chosen by the system based on their wealth and after such proposed blocks have been 'validated'. This kind of validation process is known as attesting and someone gets a reward if they attest properly. 

What are the differences between PoW and PoS? 

The biggest difference between the two systems is their gap in computing power. That is something that plays a big factor in people’s decisions on what to use. They stem from the same concept but these two systems are different. Let’s talk about some of the differences between the two. 

When it comes to the transaction rewards, PoW requires all of its miners to at least attempt to look for a solution to a complex problem. This will be determined by the quality of the hardware that people possess. If they don’t have that kind of hardware, you can’t expect them to be competitive in the mining process. While some lower-end hardware is capable of undergoing the process, it is not sustainable as it will put too much strain on the hardware.

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On the other side, the PoS model will randomly choose the winner of the reward based on the amount that they have staked. This is one of the best points of the model as people like the system that is more geared towards helping the network be secure rather than be exposed to an attack by people who have malicious intent. 

The PoS model works well as you earn more as you stake more. However, you will also lose more if you go against the system. This is something that people who prefer PoS argue as it’s a model that has good quality on the usability side. 

When it comes to power consumption, this is probably the most prominent talking point for these models. People know that mining takes up so much power which is why it’s a big no from people who care about the environment. There is not yet a solution for this as people have to use the current resources for electricity. 

You have to know that electricity bills are still paid with fiat currency which hurts the overall use of both crypto and the systems that it employs. It will be a slower process for everyone involved if they had to use other modes of power. Aside from the power that is required for the hardware, they also have to invest in the cooling as these PCs run blistering hot and proper ventilation is needed for it to run smoothly.

Why people are hesitant to use PoW

Trust is a big part of crypto and seeing that many PoW systems are vulnerable to attacks is scary for people. Of course, they are investing a large number of assets to fund their crypto journey. If their system gets hacked, that is a big loss.

The aforementioned price of the hardware that people have to use is a big problem as well. For people to earn more crypto in a PoW system, they will also have to invest first in hardware and a suitable cooler environment for that machine as well. If they can’t afford to do that, there will be problems in adjusting to the crypto world as everything revolves around having a PC that can compute with solid power.

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There are still issues with PoS

Despite some people’s opinion that PoS is much better than PoS, there are still some issues that have yet to be resolved. When people talk about PoS, there is something about the system helping the rich get richer. The more coins that they can afford to buy, the more coins can be staked and then turned into proper assets. 

Sometimes, PoS is a good idea but there are also some events that it is otherwise. The idea that the only people who benefit from the system are those who can afford it is a double-edged sword. Most countries are used to having a say in what happens but if the rich are the only ones who can make a difference, then people might be turned off with the use of the PoS model. 

People get into crypto mostly because of its nature. There is no central power that governs the use of crypto and that is a strong draw for the market. With PoS, the system favours the rich and powerful which can also mean big corporations. That is something that people want to get away from but with PoS, they might have to deal with corps all over again. 

Why people need to learn more about crypto before investing

Some people will tell you that getting into crypto is a good move. Of course, there is a big positive that you can get from the market but you should know what you’re getting yourself into. Make sure you look into it first as it will take up a large chunk of your time. It will be worth it as long as you can keep it up for a long time. 

It will be hard to break away from crypto when you find success so make sure that you take care of your assets. It will be easy to invest when you know the possible pitfalls that you might fall into. If you can control everything properly, you won’t have to worry about anything. 

Just remember the first time that you went into the free CSGO skins world, you had to think about your moves. This is the same with the two systems that will be a big part of your decision. As long as you can find the positives, you will have no problem with crypto.

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Words: Pocholo Magsino