Is Proof-of-Stake better than Proof-of-Work? The answer might surprise you.
We’ve all been there: struggling to come up with a solid answer to the most primordial question asked by non-cryptoheads: “How does blockchain exactly work?” After the obligatory “Uhm, good question”, followed by a critical look, you’ll probably end up mentioning Proof-of-Stake and Proof-of-Work, but how does it work, and is there an easy way to translate these complex, technical principles, to something more digestible?
First thing’s first, both are used as verification methods when purchasing cryptocurrency. They work to ensure transactions are secure and accurate, essentially acting as a middleman. In order for this to happen, the network utilizes a consensus mechanism to ensure all transactions are legitimate.
What is Proof-of-Work?
Proof-of-work is the original way to validate transactions and works to prevent any malicious activity. This system is used by Bitcoin, Ethereum 1.0, and various others and is to many cryptohead’s considered to be the cornerstone of blockchain excellency. This consensus mechanism is predominantly used in cryptocurrency mining. The catch is that it often requires large amounts of energy.
What is Proof-of-Stake?
Proof-of-stake is another way to validate transactions on the blockchain. Since its inception, Ethereum 2.0 and others have adopted this model. The proof-of-stake system is grounded by a consensus mechanism, which validates transactions on a given blockchain via contributors. Proof-of-stake enables investors to earn more cryptocurrency for validating blocks.
Which Consensus Mechanism is Better?
As mentioned before, Proof-of-Work requires massive amounts of energy to validate and process transactions. Miners around the world compete to have a chance at updating the blockchain with the latest transaction. Since only one person actually gets to verify the transaction, thousands of energy-intensive computers produce a plethora of waste. Even though Proof-of-Work has proven to be successful, it is ultimately extremely inefficient and negatively impacts the environment.
Interesting fact: According to the Cambridge Center for Alternative Finance, Bitcoin’s energy consumption via Proof-of-Work surpasses that of Argentina and The UAE, and is close to the consumption of Norway per year.
On the other hand, Proof-of-Stake works by selecting validators depending on how much crypto they have staked. This enables Proof-of-Stake to be a more energy-efficient consensus mechanism to validate transactions. Additionally, Proof-of-Stake is more scalable than Proof-of-Work, allowing for a greater number of transactions to occur without hindering efficiency.
There are some drawbacks of Proof-of-Stake, such as slashing. Since Proof-of-Stake requires validators to stake crypto, slashing occurs if bad transactions are validated, resulting in a loss of crypto. Equally disadvantageous is that some systems choose validators based on their holdings, causing a disproportionate skew in favor of the whales.
And the winner is?
Both consensus methods have clear positives and negatives. Without discrediting Proof-of-Work, we at Decubate, favor Proof-of-Stake due to its strong community-oriented staking capabilities. We translated many of these community benefits directly into our own staking platform. Equally as important, we vouch for the more environmentally conscious form of verification that is Proof-of-Stake. After all, what good is a good computational solution if it burns up precious resources in the long run?
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Decubate is a web3 software company and investor club. Our vesting and staking products help leading crypto projects increase token holder engagement. Our investor club provides members with exclusive value creation opportunities from the projects we partner with.