Proof of Work vs Proof of Stake

Proof of Work (PoW)

Proof of work is a protocol that has the main goal of deterringcyber-attacks such as a distributed denial-of-service attack (DDoS) which has the purpose of exhausting the resources of a computer system by sending multiple fake requests.

Proof of work is a mining process in which a user installs a powerful computer or mining rig to solve complex mathematical puzzles (known as proof of work problems). Once several calculations are successfully performed for various transactions, the verified transactions are bundled together and stored on a new ‘block’ on a distributed ledger or public blockchain. Mining verifies the legitimacy of a transaction and creates new currency units.

Generating just any hash for a set of bitcoin transactions would be trivial for a modern computer, so in order to turn the process into “work,” the bitcoin network sets a certain level of “difficulty.” This setting is adjusted so that a new block is “mined” – added to the blockchain by generating a valid hash – approximately every 10 minutes. Setting difficulty is accomplished by establishing a “target” for the hash: the lower the target, the smaller the set of valid hashes, and the harder it is to generate one. In practice, this means a hash that starts with a long string of zeros: the hash for block #429818, for example, is 000000000000000004dd3426129639082239efd583b5273b1bd75e8d78ff2e8d.

That block contains 2,012 transactions involving just over 1,000 bitcoin, as well as the header of the previous block. If a user changed one transaction amount by 0.0001 bitcoin, the resultant hash would be unrecognizable, and the network would reject the fraud.

Proof of Stake (PoS)

 

According to investopedia:

“Proof of Stake (PoS) concept states that a person can mine or validate block transactions according to how many coins he or she holds. This means that the more Bitcoin or altcoin owned by a miner, the more mining power he or she has. The first cryptocurrency to adopt the PoS method was Peercoin.”

Unlike the proof of work system, in which the user validates transactions and creates new blocks by performing a certain amount of computational work, a proof of stake system requires the user to show ownership of a certain number of cryptocurrency units.

The creator of a new block is chosen in a pseudo-random way, depending on the user’s wealth, also defined as ‘stake’. In the proof of stake system, blocks are said to be ‘forged’ or ‘minted’, not mined. Users who validate transactions and create new blocks in this system are referred to as forgers.

In most proof of stake cases, digital currency units are created at the launch of the currency and their number is fixed. Therefore, rather than using cryptocurrency units as reward, the forgers receive transaction fees as rewards. In a few cases, the new currency units can be created by inflating the coin supply, and forgers can be rewarded with new currency units created as rewards, rather than transaction fees