What Are Proof Of Stake Or Proof Of Work Coins?

Jump to page contents

What Are Proof Of Stake Or Proof Of Work Coins?

Proof of Stake (PoS) and Proof of Work (PoW) govern the way that transactions are verified in a decentralised network, such as blockchain. PoS is the more recent of the two terms and became significantly important when the Ethereum blockchain announced that it will start using this as its main method of verification.

Proof of Work

PoW is a protocol designed to deter cyber-criminals and unauthorised access, such as the common DDoS attacks. This design protocol existed before Bitcoin, but it was deemed safe enough by the elusive cryptocurrency founder. In fact, it featured extensively in his original white paper as it is the basis of a decentralised, trustless network.

PoW is an important element in the mining process as it is used to define an intricate, and oftentimes expensive, computer calculation. Without mining, new blocks cannot be created or verified, and the entire blockchain infrastructure would collapse. Through mining, miners get rewarded in cryptocurrency, which they can then trade on exchanges or store in secure wallets.

Technically, mining is the reverse process of hashing, as it determines a number so the cryptographic hash algorithm of the data within the block results in lower than a given threshold. When a miner, or pool of miners, arrive at the correct solution, the entire network is informed and the miner receives the prize as proof of his/her/their work.

PoW works similarly across a variety of cryptocurrency blockchains, including Ethereum, however, the developers of this blockchain sought to introduce an alternative system of reward.

Proof of Stake

PoS transforms the consensus mechanism, turning it completely virtual. This system’s overall processes mirror those of PoW, with the main difference being the method of reaching the end goal. While in PoW miners solve cryptographic algorithms using computers, in PoS miners use validators.

These validators store some of the blockchain’s cryptocurrency, such as Ether, to use as a stake in the ecosystem. Then they bet on the blocks which they feel will follow on the chain. When they are correct, these receive a block reward which is proportionately divided according to their stake.

Validators are selected from a pool of forgers, who are users who express their interest to use PoS. After agreeing to a contract, forgers will be inducted and become validators. The reward received by each validator depends on the total number, therefore, the more validators the lower the reward and vice versa.

Why PoS?

The simple answer is energy. PoW processes require massive energy which is expensive and damaging to the environment. According to 2015 data, 1 Bitcoin transaction requires the same amount of electricity consumed by an American household in 1.57 days. Since this electricity is paid for using fiat currency, there is constant pressure to use Kraken and other exchanges to sell crypto. 

Another advantage is that while PoW miners could end up owning none of the crypto being mined, PoS forgers always end up owning the coins which are minted.

Register for Latest Updates & News

We respect your email privacy

Subscribe now to recieve exclusive updates and offers!

Recently Similar Guides

Latest Guides

What are Market Orders and How to Use Them?

When it comes to trading in the financial market, whether you’re trading CFDs or buying the actual underlying asset, there are several orders you can use to execute your trade. These execution methods entirely depend on your trading strategy, and they can broadly be categorized as either market orders or pending orders. The primary difference […]

18 January, 2022

A Comprehensive Guide To Reading Candlestick Charts Effectively

Technical traders use various tools to analyze the global financial markets. With the advent of technology and the internet, traders can easily access these valuable trading tools for free. However, the problem could be choosing the right and comprehensive tool among the lot. For instance, novices can get confused with what chart to pick to […]

5 January, 2022

The Role of Fundamental Analysis

Like any other financial asset, trading cryptocurrencies require a well-defined strategy. This strategy will require a never-ending learning process. The three major analyses you’ll need to conduct are fundamental analysis, technical analysis, and a third but relatively unknown one, Sentimental analysis. The sentimental analysis is a measure of people’s sentiment towards an investment class. It’s […]

29 December, 2021

Key Drivers of the Crypto Market

The cryptocurrency wildfire has swept throughout society, and it has reached the extent where every fight against crypto has only stoked this fire. This new craze has not spared any sector of the global economy, with the sector of every nation adopting new strategies to work with digital currencies. In this article, we want to […]

16 December, 2021
Cryptocurrency,Trading

How to Develop a Crypto Trading Plan?

Have you ever been burnt by FOMO (fear of missing out)? Perhaps, you saw a trending token on social media that’s already rallying, and you bought, only to be burnt by a rug pull. If you can relate to this scenario, this article is for you. If you can’t relate, this article will help you […]

1 December, 2021
Cryptocurrency,Exchange Platforms

Top 9 Crypto Exchanges by Volume in 2022

As the crypto market continues to gain increasing mainstream popularity, crypto exchanges play a critical role by ensuring a constant supply of liquidity. There are over 500 crypto exchanges, with many more launching almost every other day. While many factors determine the best crypto exchange, the volume has always been the major determinant. Volume refers […]

11 November, 2021
Altcoins,Crypto Mining,Cryptocurrency

What is Staking in Crypto?

Let’s Define Staking Crypto staking can be likened to depositing your money in a bank. It simply means locking up your assets in exchange for rewards or interest. In other words, staking is when you commit your crypto assets in order to support a blockchain network and confirm transactions. Crypto staking is common with cryptocurrencies […]

4 November, 2021
Blockchain,DeFi

Which is the Fastest Cryptocurrency?

Cryptocurrency is now a global phenomenon that has enjoyed so much attention in virtually every sphere of human existence. From politics to banking, and even space shuttle, big corporations are now accepting digital coins as a form of payment for their products and services. With the number of digital currencies in the crypto space, there […]

25 October, 2021