Proof of Work vs Proof of Stake: Key Differences



Proof of work (PoW) and proof of stake (PoS) are the two main ways that blockchains agree that transactions are valid and what state the ledger should look like. This is otherwise called a consensus mechanism. Since launching in 2009, Bitcoin has continued to use PoW. In September 2022, Ethereum switched to PoS. Proof of work asks participants to run powerful computers and burn electricity to secure the network. Proof of stake requires validators to lock up their cryptocurrency.



Key takeaways

• Proof of work uses energy-intensive computing to reach consensus; proof of stake requires locked-up cryptocurrency.

• PoS consumes far less energy than PoW by requiring capital instead of hardware and energy to secure a network.

• PoW and PoS are consensus methods with each having tradeoffs across security, energy, speed and decentralization.

Proof of work vs proof of stake: the short answer

In PoW, miners burn huge amounts of electricity and compete to add new blocks to the chain. If successful, the miner wins BTC and transaction fees as a reward. In PoS, cryptocurrency is the only upfront cost, and it’s locked up as collateral. Validators risk losing portions of their stake if they underperform. PoS uses far less electricity than PoW, while the two approaches make different trade-offs in security and decentralization. Though they differ in approach to how they achieve consensus, they are similarly difficult to attack. In order to take over a PoW network, an attacker will need to control 51% or more of the network with massive amounts of hardware and electricity costs. Similarly, in PoS, the attacker will need to command a majority of the crypto staked.

How proof of work secures a blockchain

Proof of work is the original consensus mechanism for blockchains. It has been used by Bitcoin since 2009 and continues to be used by a number of other networks. Miners gather pending transactions from the mempool and build a candidate block. They then race to solve increasingly difficult puzzles and add a new block to the chain. The winner receives the block reward (new bitcoin tokens) plus transaction fees. Over time, it becomes harder and harder to mine bitcoin (block difficulty), which requires more time and power, especially if participants want to remain competitive. The increasing cost of participation contributes to the security of PoW networks, although the impact on decentralization depends on miner distribution.

How proof of stake secures a blockchain

Proof of stake requires participants to lock up their crypto tokens to become network validators. The network selects a validator to propose the next block. Validator selection typically takes stake size into account, depending on the network’s consensus rules. Other validators then vote (attest) that the proposed block is in a correct state. Once enough agree, the block is finalized, added to the chain, and all participating validators earn yield. Validators put their own money into running a validator node and earn yield. Underperformance or cheating is met with penalties to their stake.

Proof of work & proof of stake compared

Let’s compare the two systems across these key areas:



The energy debate: why PoS uses far less

PoW is energy-intensive because of its ever-increasing need for powerful mining machines that are competing 24/7. According to the Cambridge Bitcoin Electricity Consumption Index, the energy required to power the Bitcoin network is comparable to that of a medium-sized nation. PoS uses roughly 99.95% less energy than PoW because it doesn’t require increasing amounts of computing and electrical power for validators to function. Many Layer-1 blockchains now choose PoS for this reason. In recent years, PoW miners have increasingly tapped into more sustainable or greener sources of energy, which supporters argue has improved the renewables sector.

Which crypto networks use which?

Some of the oldest and longest-running crypto networks still use PoW, which includes Bitcoin, Litecoin, and Dogecoin. Major networks running on PoS include Ethereum, Solana, BNB Chain, Cardano, Polkadot, Avalanche, Tezos, Cosmos and Algorand. Newer networks tend to choose the proof of stake model, of which there are several variations, such as delegated proof of stake (DPoS), nominated proof of stake (NPoS), and liquid proof of stake (LPoS).

Bottom line

Proof of work and proof of stake are two approaches to solving the same problem, which is keeping a decentralized blockchain accurate and secure. PoW has a long-running proven track record when it comes to security, but it relies on significant real-world energy costs to keep it running. PoS reduces the resource demand significantly, but introduces risk to capital and debate around validator concentration. Each model continues to evolve. PoW is increasingly efficient as newer hardware and an increasing pool of renewable energy sources become available. PoS is improving on the technical side with faster finality, new slashing rules, and becoming more accessible as the consensus mechanism becomes more nuanced over time (DPoS, LPoS, etc.)

Finally, these aren’t the only consensus mechanisms available for blockchains, as new models such as Proof of Authority (PoA), Proof of History (PoH), Proof of Burn (PoB) and others emerge. For now, proof of work and proof of stake remain the dominant mechanisms.

FAQ

What is the difference between proof of work and proof of stake?

Proof of work consumes massive computing power and energy in a competition to add new blocks to the chain. Proof of stake validators lock up their cryptocurrency and are selected based on how much they have staked.

Is proof of stake better than proof of work?

Both have pros and cons. Each approach has different strengths and trade-offs. PoS generally consumes less energy, while PoW has a longer operational track record.

Why does Bitcoin still use proof of work?

Bitcoin’s creator(s) selected proof of work as it connects network security to real-world energy and hardware costs. Changing the consensus mechanism would require a hard fork and put the network’s security model at risk.

Why is proof of stake more energy efficient?

By removing the need for powerful computers to run 24/7, proof of stake validators only need ordinary hardware and a stable internet connection. Ethereum’s switch to PoS cut its energy consumption by roughly 99.95%.

Which is more secure: proof of work or proof of stake?

Attacking a PoW network needs massive computing power and energy consumption. Attacking PoS also requires a huge upfront cost to acquire and control a majority stake.

Can a proof of stake chain be 51% attacked?

Yes, but it requires that the attacker controls more than half of the total staked currency, making it an incredibly expensive and easily traced attack.

Which cryptos use proof of work and which use proof of stake?

Proof of work: Bitcoin, Litecoin, Dogecoin. Proof of stake: Ethereum, Solana, Cardano, BNB Chain, Avalanche, Polkadot, Cosmos, Algorand.



Investing in crypto‑assets is associated with risks, including high volatility and the potential loss of capital. Inform yourself thoroughly about the risks before making an investment decision. The information provided in this article is strictly for educational and informational purposes and should not be construed as financial or investment advice.