Hey LeoFinance. Here are some basics about Proof of Work vs. Proof of Stake. My opinions on which is better and how I believe they can be utilized in the real-world. Remember that a lot of new people are entering crypto! It's more important than ever to revisit the basics!
This is the question that many Ethereum users are asking themselves right now, with the recent turmoil caused by the upcoming Ethereum hard fork.
To understand why proof of stake is better than proof of work, it is necessary to first explain these two terms.
What is Proof of Work?
Proof of work refers to a piece of data that is very costly to produce but easy for others to verify. Its main feature is that it requires a tremendous amount of effort, or work, on the part of the person who wants to create it, but afterward, anyone can easily verify whether or not this effort has been successful by checking if enough work has been done.
Ethereum will use this method to choose which block will be added to the blockchain.
For example, imagine that two miners want to add a block to the blockchain. The first miner has mined one million blocks before, and he wants to add another one. To do this, he needs to solve an equation so difficult that it would take him years of non-stop work to do it.
The second miner has never mined a block before, but he knows an easier equation that he can solve in just seconds. However, this means that the second miner will have to carry out more than one million calculations to produce the proof of work for his block.
This is basically what proof of work is. A piece of data that takes a very long time and a lot of effort to produce, but afterward can be verified in just a few seconds.
Proof of work was designed to prevent denial-of-service attacks or spam in mind. An attack of this magnitude would require that the attacker would need to have more computational power than all the honest participants combined.
Proof of Stake
Sunny King and Scott Nadal designed proof of stake in 2012 for Peercoin, which was one of the first cryptocurrencies to use it. Proof of stake is also a piece of data that requires a significant amount of effort on the part of the person who wants to create it, but afterward, anyone can easily verify whether or not this effort has been successful by checking if enough work has been done.
The main difference between proof of work and proof of stake is that with the latter, the validator of the following block will be chosen in a deterministic way, depending on his or her wealth, also known as stake.
Imagine that two miners want to add a new block to the blockchain. The first miner has mined one million blocks before and he wants to add another one. To do this, he needs to solve an equation so difficult that it would take him years of non-stop work to do it.
The second miner has only mined one block before and wants to add another block to the blockchain. However, unlike the first miner, this second miner does not need to carry out any effort because he has a lot of money and is very rich.
The second miner is the only one who can afford to buy as much equipment as he wants, which makes him able to mine thousands of blocks with ease. In contrast, most miners do not have enough money to compete with him in this regard.