1. How it works
The difference in performance is the first thing to mention about the difference between Proof of Work and Proof of Stake. The Proof of Work algorithm is undoubtedly one of the oldest consensus algorithms (PoW). It involves a collection of transactions in a mempool, and miners must verify the validity of the transactions by solving a cryptographic equation.
PoS algorithms do not rely on solving mathematical puzzles. This algorithm randomly selects validators according to their stake in the network. In this algorithm, mining has no meaning and no currency is created by the mining method.
2. Energy consumption
The difference in energy consumption is another difference between Proof of Work and Proof of Stake. In the Proof of Work algorithm, only one node can enter transaction details into the ledger and update it with greater power and speed. Miners have to solve complex mathematical functions called hashes that generate a random number to allow a new block to be created and added to the blockchain.
This process is done with the help of specialized ASIC hardware machines that consume a lot of energy. Currently, Bitcoin’s energy consumption alone, not including other PoW networks, is comparable to that of medium-sized countries like Norway or Argentina.
In fact, if Bitcoin were a country, it would be in the top 30 in the world in terms of energy consumption! According to researchers at the University of Cambridge, BTC’s annual energy consumption is about 121 terawatt hours. According to the report, 39% of the total energy consumed by hashing comes from renewable energy.
However, in the Proof-of-Stake algorithm, the need for powerful, energy-intensive hardware is eliminated. In PoS networks, there is no competition based on energy consumption to create a new block. However, miners in PoS must always keep their systems and internet connection active, which of course consumes a lot of energy. Compared to PoW, blockchains that use the PoS algorithm require much less energy.
3. Network participation
Users who intend to enter networks that use the proof-of-work algorithm first of all need a large capital to purchase very expensive mining hardware. The higher the investment, the higher the chance of creating a new block; therefore, it can be said that those who have already taken steps to purchase powerful mining equipment or have the chance to purchase new technologies and updated versions of ASIC or GPU have a greater chance of mining in PoW networks.
But in PoS-based networks, all users who have a specific token can participate in a consensus algorithm; as a result, in such networks with fewer barriers and restrictions, any user can be a validator or block producer. Projects that use staking pools, such as Cardano or Polgadata, help users easily transfer their tokens to some well-performing pools or validators.
The conditions for entering pools or transferring funds to validators in PoS networks are such that users must have a certain number of tokens and stake them in the network for a period of time.
4. Security of the algorithm
Security is the most important concern in various blockchains. In a blockchain network that works based on PoW, if a fork occurs, miners must work on the old blockchain or migrate to a new, modified blockchain. Creating different forks is a huge economic loss; Because it causes a lot of fragmentation in the network and the community, but in the proof-of-stake protocol, there is no limit to validators and participants do not need to increase their stake to validate transactions in multiple versions of a blockchain.
5. Reward rate
Which consensus mechanism is more suitable for miners in terms of reward rate? In the PoW consensus, the block reward is in the form of a new token that is awarded to the miner for verifying and creating each block, but in the proof-of-stake protocol, the reward is awarded to validators in the form of a transaction fee or network fee, which varies in different networks.
In the Bitcoin network, miners receive a reward for each block mined. This reward includes a transaction fee and a fixed cost for a new block. This amount is halved every 4 years after a certain number of blocks have been mined in an event called halving.
As this event occurs, the supply of Bitcoin decreases over time; as a result, the number of digital currencies given as rewards to users is halved, or the price of Bitcoin doubles or transaction fees increase; otherwise, miners will not receive any profit from mining and will be forced to leave the network.
