POW vs POS

Cryptocurrency’s surge has only been recently witnessed, but a fact that most are oblivious to is that the concept of cryptocurrency was theorized all the way back in the 1980s. Projects such as eCash that surfaced in 1990 ran shortly before its parent company filed for bankruptcy in 1998. Other projects such as B-money, Bit Gold, and HashCash also tried to create a form of cryptocurrency but found little success. However, these projects inspired the creation of Bitcoin, in addition to providing the infrastructure on which it is built. Indeed, HashCash introduced the concept of Proof-of-Work (POW), a widely used consensus mechanism to this day, and Bitcoin’s main engine protocol. ?

POW?

POW?mining refers to computers competing against one another to solve a complex math puzzle. The winner gets to add a new block onto the chain, and in exchange for the effort (computational power required to find an answer) that they put in, they receive freshly minted cryptocurrency.?

The puzzle’s concept is rather simple; each block of data is headed by a hash (a number that identifies it), and miners compete to generate a number (nonce) that is equal to or less than the previous block’s hash. What makes this process complex is the fact that Bitcoin, for example, requires a nonce that is made up of 64 digits. Miners try to find those digits through trial and error, and, depending on the hardware they are equipped with, can generate billions or even trillions of potential solutions per second (also known as hash rate).?Such computational power requires an immense amount of energy to keep the machines continuously running.?

POS?

A low-power alternative approach to the POW mining protocol has seen a rise in recent years, and it is known as Proof-of-Stake (POS) “mining.” Layer one solutions such as Cardano (ADA), Avalanche (AVAX), and Polkadot (DOT) are opting for this alternative, and Ethereum has successfully transitioned from POW mining to POS, a process finalized on September 15, 2022. In addition to consuming infinitely less power than its POW counterpart, POS also increases a blockchain’s scalability as it allows for the processing of larger bodies of data at a faster rate hence permitting wider adoption. ?

Through POS, holders of a certain coin can stake their assets and continuously run “validator” software on their hardware. Rather than competing to generate an accurate nonce, the “validator” (the person who gets to add a new block to the chain) is chosen?by weighted randomness meaning the chances of getting chosen are proportional to the number of coins that are staked. Of course, this role comes with responsibilities, if a validator approves a faulty transaction, they lose a portion, sometimes all, of their staked assets. On the other hand, approving a valid transaction will reward them with freshly minted coins. ?

It is worth noting that "validator” software does require maintenance to guarantee the safety of the assets as they are prone to bugs and other technical malfunctions, just like any other software.??

Conclusion

Overall, POW and POS are the dominant consensus mechanisms available on the market, but other alternatives do exist. For example, there are the proof-of-spacetime, proof-of-storage, and proof-of-capacity, all of which are extremely similar with negligible differences. Briefly, these operate by providing storage such as SSD space to validate transactions. ?

Currently, it seems that POS is the best approach to take, for not only is it faster and scalable, but it is also infinitely more sustainable as it requires negligible amounts of power. Ethereum is providing an example that is the first of its kind, never had a blockchain transitioned from one consensus to another, so they will provide crucial data on the impact of that switch and serve as a case study to guide the direction of the field in the future. ?

Indeed, moving from POS to POW will provide analysts with an opportunity to gauge the success and performance of the chain at each stage, enabling them to devise strategies that are sure to promote success. ?