Proof of Work vs Proof of Stake: Basic Mining Guide

Going deeper, proof of work is a requirement to define an expensive computer calculation, also called mining, that needs to be performed in order to create a new group of trustless transactions (the so-called block) on a distributed ledger called blockchain .

Mining serves as two purposes:

1. To verify the legitimacy of a transaction, or avoiding the so-called double-spending;
2. To create new digital currencies by rewarding miners for performing the previous task.

Proof of stake will make the consensus mechanism completely virtual. While the overall process remains the same as proof of work (POW), the method of reaching the end goal is entirely different. In POW, the miners solve cryptographically hard puzzles by using their computational resources.

In POS, instead of miners, there are validators. The validators lock up some of their Ether as a stake in the ecosystem. Following that, the validators bet on the blocks that they feel will be added next to the chain. When the block gets added, the validators get a block reward in proportion to their stake.

In a distributed consensus-based on the proof of Work, miners need a lot of energy. One Bitcoin transaction required the same amount of electricity as powering 1.57 American households for one day (data from 2015 ).

And these energy costs are paid with fiat currencies, leading to constant downward pressure on the digital currency value.

Thanks to a PoS system validators do not have to use their computing power because the only factors that influence their chances are the total number of their own coins and the current complexity of the network.

So this possible future switch from PoW to PoS may provide the following benefits:

1. Energy savings;
2. A safer network as attacks become more expensive: if a hacker would like to buy 51% of the total number of coins, the market reacts by the fast price appreciation.