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Proof of Work vs Proof of Stake – How Do These Consensus Mechanisms Work? Full Explanation

What is the difference between Proof of Work (Pow) and Proof of Stake (PoS) and how do these Consensus Mechanisms work? You’ll know the complete answer in just a few minutes! And you automatically pick up the answers to many more questions! Let’s start.


What are Consensus Mechanisms and how exactly do they work?

A consensus mechanism is a method that determines how agreements are made, for example with transactions within the blockchain. The Consensus algorithm also determines which data input is reliable and which is not.

What is the Proof of Work Consensus Mechanism?

The Proof of Work (PoW) consensus mechanism is currently the most widely used consensus mechanism and perhaps the best understood. Introduced by Satoshi Nakamoto in  Bitcoin whitepaper in 2008.

For an emerging technology like blockchain, PoW has proven to be an extremely secure and reliable consensus mechanism.

The basic components of PoW are miners and energy. Miners are the persons or entities that maintain the network by running and managing nodes (computers). Miners send nodes to consume electricity in the form of computing power to solve increasingly complex math problems.

The miner who solves the problem will be the first to earn the right to a block reward (At time of writing 6.25 bitcoins per block).

Spending computing power costs money in the form of electricity –– in addition to the initial hardware cost. However, the cost of being a miner is made worth it by block rewards (Rewards). When a miner successfully finds a block, they receive a block reward in the form of the blockchain’s own coin.

As more miners start running on a blockchain, the hash rate (i.e., the computing power of the network) increases, meaning the next block can be mined slightly faster than the previous one.

The network tries to maintain a consistent block time (the time between each block); Ethereum is mined every ~14 seconds and Bitcoin is mined every ~10 minutes.

If the hash rate increases and a block is mined a little faster than before, the difficulty is automatically increased for the next block, making it a little harder to mine a block and re-stabilizing the block time. The difficulty level regularly adjusts after each block so that the block times remain relatively stable.

If miners leave the network (which can happen for a variety of reasons, including a drop in USD value), the difficulty will decrease, meaning it will be easier for miners to mine blocks and receive rewards. This reduced difficulty serves as an incentive for more miners to return to the network, keeping the network strong and sufficiently decentralized.

PoW blockchains have proven to be extremely powerful and secure. The chance for malicious hackers to shut down the entire PoW blockchain is actually impossible, which should mean that the hacker would have to be able to generate enough computing power from thousands of computers (nodes) to then take over the network of the blockchain. In theory, this would not even be possible because it would cost an extraordinary amount of money.

What is the Proof of Stake Consensus Mechanism?

While in PoW miners use energy (electricity) to find blocks, the Proof of stake is different. Here your coins are used as validators to find and confirm new blocks.

Validators are the participants in the network that run nodes (called validator nodes) to propose and validate blocks on a PoS blockchain. They do this by staking crypto on the network and making themselves available to be randomly selected to represent a block.

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