What Is Proof of Stake and How Does It Differ from Proof of Work?

Introduction

The principle of blockchain technology is to create a public ledger with no regulatory authority. Some questions arise. Who verifies the financial transactions? How can the blockchain be sure that you are not trying the same funds thrice?

The nodes in the blockchain are responsible for transaction verification. How do they do it? This is the point that Proof of Stake (PoS) and Proof of Work (PoW) come into the picture.

Proof of stake and proof of work serves as a consensus mechanism to verify transactions. There are several other consensus mechanisms. PoW and PoS are the most common methods by far. These two methods eliminate the need for third-party verification.

Proof of Work

Moni Naor and Cynthia Dwork published the results of their research on the Proof of Work consensus mechanism in 1993. When Bitcoin came on the scene, Satoshi Nakamoto used the proof of work system to verify transactions.

The proof of work protocol prevents duplicate and fraudulent transactions. Some other cryptocurrency blockchains also follow Bitcoin's proof of work system. Each participant in the PoW consensus mechanism is called a miner. There are thousands of miners on the network.

The basis of the proof of work is an advanced level of mathematics called cryptography. Only computers can solve the complex mathematical equations needed to confirm a transaction. Each miner has to work hard and compete to solve the cryptographic equation.

The miner who solves the problem first gets the entire reward. One issue with the Proof of Work is that it is not based on a just system. People who have more powerful hardware resources have a higher probability of getting rewarded with new coins. The other miners in the network will receive zero rewards. Computations that use this protocol also consume a large amount of electricity.

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Proof of Stake

Sunny King and Scott Nadal created the proof of stake model in 2012. The first cryptocurrency project to use this algorithm was Peercoin. The Proof of Stake aims to make the validation process virtual. The flow process for the Proof of Stake consensus mechanism is the same as that of PoW.

However, the method to achieve the end result is distinct. Proof of Stake replaces the miners with validators or forgers. These validators will house their resources in the blockchain as a stake. They will wager on the next block that they feel should be included in the chain.

Each contributor or validator will receive a reward according to their stake. Ethereum developers are planning to migrate from the Proof of Work (PoW) method to Proof of Stake (PoS). PoS will consume fewer electricity resources during mining compared to PoW.

Proof of Stake can also make attacks on the blockchain more difficult. It will cost too many resources to make an attack on the chain. One downside of the PoS consensus mechanism is the large number of coins required before a forger is allowed to make a stake.

Conclusion

Blockchain technology is designed to be secure and immune to cyber-attacks. It is the most difficult task to hack a blockchain. However, this is not to say it is entirely impossible. Some of the common techniques hackers use are the 51% attack and Distributed Denial of Service (DDoS). DDoS tries to send multiple requests to shut down the blockchain server.

For these reasons, a secure protocol is needed to continuously keep the network from malicious attacks. There is a lot of ongoing research to develop better methods to protect the blockchain.