When Bitcoin introduced its “consensus mechanism” in 2009, the way its blockchain processed and verified new transactions was based on what is known as “proof of work”. Since its inception, many other blockchains have emerged and some have taken a different approach to finding consensus, referred to as “proof of stake.”
Bitcoin is still the top dog as the world’s largest cryptocurrency, but the number two and most widely used, Ethereum, has finally given up proof of work. After a long delay and a significant amount of testing, the Ethereum blockchain has implemented The Merge and is now using Proof of Stake. So what is the difference between the two consensus mechanisms? Is one better than the other?
Proof of Work Blockchain Technology
The benefit of blockchain technology, for both Proof of Work and Proof of Stake, is that it uses a shared and immutable ledger verified by numerous computer nodes, making it decentralized. This creates more security, more transparency and immediate traceability, according to supporters.
On a proof-of-work blockchain The computer nodes compete with each other to be the first to get past the post in solving complex math puzzles to add a new block to the chain and with it all the rewards.
In the case of bitcoin miners those who run powerful computers to solve the puzzles, 6.25 bitcoin for each block they successfully mine. This amount will halve sometime in 2024 and will continue to do so until the maximum supply of 21 million is exhausted, around 2140. After that, miners receive fees from the transactions to keep the network running.
However, this competition between nodes means that proof-of-work requires massive amounts of energy to run these number-crunching computers. In the case of bitcoin, Its consumption was slightly lower than that of Argentina. This was just a blow to blockchain technology and crypto assets, which have resisted wider adoption of the technology.
Proof of stake blockchain technology
One of the selling points for The Merge’s Proof of Stake adjustment is that the switch will reduce its power consumption by 99.95 percent. However, according to Digiconomist, a website that tracks crypto’s energy consumption, Ethereum uses far less energy than it did before The Merge. A single transaction still has a carbon footprint equivalent to 10,794 VISA transactions or 812 hours of YouTube viewing.
Proof of Stake eliminates the need for massive calculations to add new blocks to the chain. Instead of this, those involved in the network can participate in the validation mechanism. Validators place a minimum stake of 32 Ether, the digital coin of the Ethereum blockchain, but the larger the stake, the greater the chance of being selected to verify the validity of new blocks propagated across the network and therefore the monetary reward associated with them. This won’t necessarily block small participants, however, as investors can allocate stocks to an exchange-operated equity pool.
Which is Better, Proof of Work or Proof of Stake?
If all you care about is saving energy, Proof of Stake is clearly superior, but each has its own uses and none solves the problems that have plagued cryptocurrencies and assets. Crypto has also come under the crosshairs of government regulators due to its use for nefarious purposes, scams and hacks that have caused people to lose over $1 billion since the beginning of 2021, as well as theirs highly volatile nature.
Proof of Work is much slower than Proof of Stake. For example, after the transition, Ethereum expects to complete up to 100,000 transactions per second in addition to launching its shard chains. That’s an increase from just 30 transactions per second on its Proof-of-Work blockchain. However, Proof of Work is considered more secure and able to maintain a decentralized network.
Ethereum counters that the Proof of Stake should make its blockchain safer by increasing the cost of a potential perpetrator of a 51 percent attack. Then miners with majority network control can pause the recording of new blocks. Likewise, The community can collectively restore the honest chain should an attack overcome the cryptocurrency defenses.
Still, there is concern that Ethereum could switch Reduce its decentralized nature and divert more power to large corporations. This, in turn, raises the specter that it would be easier for governments to pressure a staking service to comply with orders to censor certain transactions. Brian Armstrong, the CEO of Coinbase, the largest US exchange with 14 percent of all ether staked, has said he would rather shut down the company’s staking service than comply with such a hypothetical order.