Proof Of Work vs Proof Of Stake Comparison

With the rise of energy consumption by Bitcoin’s Proof of work and Ethereum’s plan of switching to Proof of Stake system, the two have been in discussion a lot in the recent days. While Proof of stake seems a lot better in theory, is it really better? Lets do a quick comparison.

Proof Of Work

In a Proof of Work system, a miner is required to perform some work like solving a maths puzzle to be able to create a block and submit it to the network. Each miner is awarded some coins in return of their work along with the fees of the transactions that they validate.

Advantages Of Proof Of Work

  • Supply distribution – Proof of work is better for supply distribution of a currency. In the initial phase, mining is easy and can be done by several miners. As the time goes on, the mining becomes centralize but proof of work becomes harder as well and the miners have to keep selling a supply of their holding to cover their costs.
  • Consensus And SPV Clients – In a proof of work system, if the chain gets forked into two chains due to social or technical consensus issues, it is easier to determine which chain has better mining support by determining the amount of work done in each chain’s blocks. SPV clients are often set to follow the chain with most work done.
  • Inflation control – Proof of work algorithm is better for inflating currencies as the supply can be easily controlled by changing the amount of work required to create blocks in a period of time.

Proof Of Stake

In a Proof of Stake system, a miner is required to lock up some coins. The network then uses some certain algroithms such as the coin age, amount of coins locked up etc. to determine which miner should be able to create the block and submit it to the network. Each staker is awarded some interest on the coins he staked along with the fees from validating the transactions.

Advantages Of Proof Of Stake

  • Energy Benefits – In a proof of stake, there are no math puzzles to solve so it is a much better and greener alternative to proof of work systems.
  • 51% attacks –  In a proof of work system, a miner holding more than 50% of the mining power is able to attack the blockchain for double spending. In a proof of stake system, the attacker will need to buy out more than 50% of the coins in the network to perform a 51% attack which is far more expensive.

Proof Of Work vs Proof Of Stake

  • Energy Tradeoffs – Proof of stake systems save a lot of money that would have been spent on mining in proof of work system. Bitcoin is currently using as much energy as some of small countries. While it is a kind of problem, any attacker that wants to attack bitcoin will have to be able to spend same amount of energy to do so.
  • Consensus Tradeoffs – In a Proof of stake system, there is no proper way to determine which chain has the better support in case of a forking event and requires developer intervention. In proof of work system, the chain with the most work can be chosen. It may seem as a benefit for proof of work system but the recent attempt of segwit2x on the bitcoin blockchain highlights this as an issue where majority of mining power had planned to switch a different chain even though there was no social consensus for it.
  • Supply Distribution Tradeoffs – Supply distribution is a problem in both proof of work and proof of stake systems. In proof of work systems, the miners are forced to sell a portion of their supply due to increasing costs that they have to cover whereas in proof of stake systems, the users don’t have any motivation to sell off any coins. It creates a type of centralization as the rich owners get more rich over time. In proof of stake systems, it is much easier to maintain the price of the coins as owner of the new coins generated by the network have no motivation to sell them but proof of work systems provides a constant flow of liquidity in the market which can cause price crashes.
  • 51% Attacks Tradeoffs – In proof of work systems, the 51% attacks are determined by the amount of work needed to attack a chain. A miner owning 51% of the mining power is able to attack the chain. In proof of stake system, a user owning 51% of coins is able to attack the chain. While buying that much coins may seem expensive but since the rich owners in a proof of stake system are awarded a constant supply of rewards over time, this can become an issue overtime. Moreover, the attacker necessarily don’t need to buy 51% of the supply as not every coin in the network is available for staking and most of the coins are locked up in big exchanges which don’t stake the coins so the attack becomes a lot easier. But in both proof of work and proof of stake system, there are no good motivations for an attacker to attack a chain. A miner owning 51% of the power on a chain may not want to attack the chain as his equipments that can be used to mine the coin and get returns over time will go to waste. In proof of stake system, a user owning 51% of the coins would certainly not want to destroy his wealth by destroying the network his coins are on.
  • Inflation Tradeoffs – In proof of work system, the supply of new coins into the system is fixed over time via the block creation algorithm. If there are too many miners in a network, the difficulty increases and it becomes difficult for everyone to make a new block and get new coins and if miners leave it becomes easier for everyone. In proof of stake sytems, there is no good way of introducing new supply into the ecosystem. Some blockchains have tried providing interest to users that stake their coins. If the network wants the supply to increase 2% of new coins every year, a 2% interest is provided to the person staking his coins after a fixed coinage is achieved. But since not everyone in the network stakes his coins, the inflation will always be less than set percentage.

Conclusion

Both Proof of Work and Proof of Stake systems have some advantages and disadvantages. Proof of work system looks better on the safe side but requires a huge amount of energy input over time whereas proof of stake is somewhat less secure but saves a ton of money spent in energy.

Let us know which one do you think is better between Proof of Work and Proof of Stake in the comments below.

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Shivam Chawla

Following CryptoCurrencies since 2013. Investor in Bitcoin, Ethereum and Litecoin. If you like my articles, follow me at http://twitter.com/shivamchawla243 or donate Bitcoin at : 3E1vJTdKqBPewSepnVNjsoy7MPQonwy8X4

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