What Are Proof Of Stake Or Proof Of Work Coins?

Jump to page contents

What Are Proof Of Stake Or Proof Of Work Coins?

Ready to join our tribe?

We respect your email privacy

Subscribe now to recieve exclusive updates and offers!

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.

Recently Similar Guides

Latest Guides

Cryptocurrency,Exchange Platforms,Trading

A Guide To Cryptocurrency Arbitrage Trading

Back in the day, the only cryptocurrency and exchange/wallet known to the public was Bitcoin and Coinbase, respectively. The features and popularity of Bitcoin led to the introduction of many other coins and crypto exchanges. Unlike traditional centralized exchanges (ex: NYSE), crypto exchanges have their own price of tradable cryptos. In simple words, for a […]

19 January, 2021
Bitcoin,Casino,Cryptocurrency

What are the Traits of a Bitcoin Casino?

The massive surge in popularity of cryptocurrencies such as Bitcoin has led to the flourishing of a new wave of online casinos. Bitcoin transactions are becoming more common so it was inevitable that the gaming industry would catch on to this trend soon enough. What Differs a Crypto Casino and a Regular Casino? Up until […]

2 October, 2020
Bitcoin,Blockchain,Cryptocurrency,Decentralised

What Is A Bitcoin Fork?

Bitcoin forks are an important aspect of open sourced and decentralized technology. Bitcoin forks allow users to create new blockchain platforms based off of Bitcoin’s open sourced code, but what is the point? In this guide we explain everything about Bitcoin forks, what they are used for, and why they are important for the cryptocurrency […]

28 September, 2020
Blockchain,Cryptocurrency,Ethereum

What is VeChain?

So, What Exactly is VeChain? VeChain is a platform created using Blockchain technology and designed to improve existing supply chain management and oversight. The platform takes advantage of several elements of Distributed Ledger Technology (DLT) to facilitate the process of origin confirmation and quality mark of a particular product. VeChain is made up of two […]

26 August, 2020
Bitcoin,Crypto Mining,Cryptocurrency,Mining

Hash Rate Vs. Hash Power

Hash rate and hash power are two very important aspects of securing and verifying the transactions on a blockchain. What is the difference between the two? Why are they necessary for proof-of-work verified blockchains? We discuss this and more below. So, What is Hash Rate? Hash rate and hash power both relate to how a […]

20 August, 2020
Bitcoin,Casino,Gambling

Betting in Bitcoin

Since their inception at the turn of the millennium, online casinos have been at the forefront of technology adoption. From mobile gaming to automated verification and the use of virtual reality, the industry is constantly evolving. This is normally great news for players, as most innovation is a step towards a better, safer, fairer, and […]

20 August, 2020
Bitcoin,Casino,Cryptocurrency,Gambling

The Next Big Cryptocurrency

Will There Ever Be A New Bitcoin? Bitcoin is the first iteration of blockchain technology and cryptocurrency to ever be created, and it is also the largest cryptocurrency by market capitalization, worth over 170 billion dollars. After more than 10 years from Bitcoin’s date of inception, there is now well over 5500 unique cryptocurrencies, hundreds […]

10 August, 2020
Cryptocurrency,Trading

What is Futures Trading?

If you ever hear about fictional characters wheel and deal over futures, you must be familiar with the phrases “invest in pork bellies” or “corner the market”. The movie “Trading Places” by Eddy Murphy/Dan Akroyd climaxed over the price of a product most people forgot: frozen orange juice. How can anyone become wealthy on pre-bacon […]

5 August, 2020