Proof of Work Vs Proof of Stake - Which One Is Better?

Now that Ethereum’s merge is only a few weeks away, we should talk about the two main consensus mechanisms that are being thrown out in discussions everywhere around the world. (Yes I know that it’s a slight exaggeration) In today’s article I want to talk about Proof of Work and Proof of Stake. What makes them stand out and what might be drawbacks? Is one really better than the other? We will try to discuss these questions down below.

Proof of Work

Let’s start off with probably the most known Crypto-Currency out there: Bitcoin! The oldest blockchain uses a Proof of Work Consensus Mechanism which brings a lot of positive sides with it. For starters, the miners have to solve an algorithmic puzzle in order to be able to push a block to the chain. This requires a lot of time and energy and is only possible with special machines nowadays. This means that if a malicious actor would like to participate in this Environment, he would need a lot of time, energy and obviously money.

This is also the reason why 51% attacks are very rare on big Proof of Work Blockchains and would only be possible on smaller blockchains that are not having the same reach as BTC. Furthermore, even if somebody would decide to corrupt Bitcoin’s Blockchain, it would take them 8.6 billion USD in hardware and 20 million USD in energy per day!. This is just insane in my opinion.

Last but not least, projects like BTC have a big institutional resistance due to the fact that the node runners are a big part of the community. On the contrary side, the are Proof of Stake blockchains where people would need just a certain amount of tokens which is obviously much cheaper and more easy to achieve. Not only that but the Proof of Work blockchains are incentivizing miners to spread all over the world in order to get the best electricity deal as less money spent for energy increases the profit margin.

On the other hand we also have some drawbacks. The most obvious and most screamed one is that these blockchains are wasting too much energy and therefore producing too much carbon di oxide. This is only partially true as a lot of miners are already switched to renewable energies which helps them to keep their profit margins high!

Furthermore, smaller blockchains can not easily protect themselves. Like we mentioned before, these mechanisms require a great network where many people are already involved. Thinking further, it would be also possible (with enough money and determination) to centralize the mining. Either by centralizing it geographically or even worse, with jus tone company.

Not only that but malicious miners are not able to being punished if performed some bad activities. They only waste their resources and money which is also very bad, in my opinion. Furthermore, the transaction fees are often higher in comparison to the Proof of Stake fees. This is not always bad as we can then protect the blockchain from spam and unnecessary load.

Proof of Stake

Moving on to the safe heaven of many crypto investors: Proof of Stake. There is a reason why Ethereum wants to merge towards this mechanism and one of these reasons is certainly that the energy use is going down severely. For example: Ethereum will reduce its network energy use by 99% after the merge was successful. Furthermore, the validators do not need as often a hardware change as the miners for Proof of Work!

In general, these networks are faster and are able to punish bad actors on the chain by slashing their stake and basically deleting their power on the chain. Furthermore, it is much easier to become a validator in a Proof of Stake mechanism than being a miner on Proof of Work.

But as we know, a coin has two sides and so does Proof of Stake. We can say that in general Proof of Stake networks a re less safe than Proof of Work. Not only that but the initial token distribution is very centralized. This makes the network more vulnerable to centralization which is a very bad loop as people with more stake will generate more staking rewards.

In many cases these mechanisms are less safe as they are completely different from the Proof of Work. For example it is often enough to have a 33% stake in order to achieve some malicious goals. Not only that but it is also still expensive to tun a validator node. And last but not least, Proof of Stake projects are often very hard to get from the ground if they are young. It requires a lot of centralization and Initial Coin Offerings to Investors which is very similar to start-Up companies which obviously attracts attention from the SEC and their definition of a security!

Conclusion

So what mechanism is better? Well, it is not that easy to say. It depends on the use-case. While Proof of Work is often much safer Proof of Stake is more scalable and therefore much faster. I would not say there is a supreme mechanism like there is no supreme automotive brand or supreme working out routine. Each ones have their benefits and their reason to be there. Nevertheless, it will be interesting to see whether the merge of Ethereum will be successful and whether the awaited price jump of Ethereum will really take place. Keep in mind that there is also the possibility of the merge to fail which would put other crypto projects into the focus, such as Cardano and their Vasil Update which is supposed to come around the same time.

Published by ga38jem on
Steemit
On 4th September 2022