Proof of work and proof of stake.
We've all heard the terms often framed as one against the other,
like Coke and Pepsi.
But at its core, they both try to solve the same problem.
The Consensus of trust in a blockchain network.
However, the issue of achieving consensus
has ignited a fiery disagreement between the two camps.
So what exactly is the difference between proof of work and proof of stake?
To enter the question, we quickly need to go back to the birth of Bitcoin.
Bitcoin's inventor Satoshi Nakamoto wanted a trustless network
where all transactions
would be secure and reliable without reliance on an intermediary.
The breakthrough moment arrived when Nakamoto proposed proof of work
as the backbone that would secure the Bitcoin network.
In this way, multiple incompatible chains are prohibited
from coexisting. To roll back a consensus version of the blockchain
it would need a Herculean level of computational power,
not to mention money to cover the eye watering electricity bill.
In order for a proof of work blockchain to run like Fort Knox,
the barrier to adding chains must be high,
which is to say it would entail substantial economic costs.
This plays out as an intense contest between warehouses
of servers like a gigantic Rubik's Cube competition.
Computers work feverishly to solve difficult cryptographic puzzles
and be the first to verify a new block successfully.
This procedure is referred to cheekily as mining.
Thus, when some people bulk at the level of computation and electricity
that proof of work requires, they're really missing the point.
The cost is a feature of the security, not a bug.
Now, ever proponents of decentralization and inclusion have argued
that as the Bitcoin network expands, people with the resources to invest
in the most advanced technology
will have an increasing unfair advantage when it comes to mining.
Adding to the controversy, the amount of energy used to power
the Bitcoin network's mining equipment exceeds that used by countries
like the United Arab Emirates or Argentina.
To some eco conscious people, this is merely proof of waste.
So what then is proof of stake?
Proof of stake like proof of work aims to establish
a single agreed upon account of activity on the blockchain.
The difference is participants called validators
lock up set amounts of cryptocurrency or crypto tokens.
Their stake, as it were, in a smart contract on the blockchain.
A reward is given in return
for locking up their stake to help validate new transactions.
However, if the Staker doesn't properly verify the blockchain,
they might lose all or a portion of their investment.
Now there's no mining in a POS system.
Rather, the network's native tokens serve as a means for establishing consensus.
And like investing in stocks, people can put up their own tokens
or pool them with others to gain exposure to the asset
while supporting its activity.
Based on the amount of cryptocurrency you stake, the blockchain's algorithm
picks validators to verify each new block of data
and as a reward for clearing the data and adding it to the blockchain,
the validator receives freshly created cryptocurrency.
You can think of a POS blockchain
like a radio show that's holding a call in contest.
The listeners or validators need to keep calling the radio station
until one is chosen.
Once the caller or validator is on the air,
they are asked a series of trivia questions.
And if they get them all right, they receive the grand prize.
But in the case of validators, instead of a crues trip to the Bahamas,
they win a pot of native tokens.
And who wouldn't love that? Well, all right.
There are some potential issues with this method, one simply being that
this younger mechanism does not have proof of works, record of success,
which has secured billions of dollars in value for over a decade.
One major concern is the vulnerability of this consensus
method from something like a relatively low cost bribe attack.
What's more similar to the growing proof of work monopoly problem
validators with a large amounts of a blockchains token will wield
an equally large influence on the proof of stake chain.
So what do you think?
Coke or Pepsi?
Ford or Chevrolet?
Proof of work or proof of stake.
Each consensus mechanism involves costs and benefits
like security, sustainability and inclusivity.
Where do you stand on these tradeoffs?