Difference Between Proof of Work and Proof of Stake

Bitcoin mining has been used to capture "stranded energy," which is energy that would otherwise go to waste (e.g. gas flaring, off-peak wind power, solar panels during daytime).

With POW, the more computational work you put into achieving consensus, confirming transactions, and reliably running the network, the more likely you are to be rewarded with newly minted bitcoin. POW is a competitive race to validate blocks, with miners expending energy in order to be the first to find the correct solution and add the next block to the blockchain. POW is a very effective way to achieve consensus and provides security for the network by making it very expensive to attack.

Proof of Work has been criticized for the amount of energy that it consumes. POW mining is specialized hardware that electricity. This has led some to believe that POW is not sustainable in the long term. However, the proportion of green energy used to mine Bitcoin has been increasing and is now estimated to be very well over half of all energy expenditure. Furthermore, some proponents have shown that Bitcoin mining has been used to capture "stranded energy," which is energy that would otherwise go to waste (e.g. gas flaring, off-peak wind power, solar panels during daytime).

POS was created as an alternative to POW in order to secure the network. Instead of using computational power, POS uses staking to reach consensus. Validators stake their coins and vote on which block gets added to the blockchain. The more you stake, the more likely you are to be selected as a validator and earn rewards.

POS has also been criticized for being centralized, as the people with the most money (i.e. those with the largest stakes) have the most voting power. However, there are POS mechanisms in place that aim to combat this issue such as decentralized staking pools, which allow people to pool their resources together and have a greater chance of being selected as a validator.

It’s important to note that the choice between POW and POS is not mutually exclusive. Each blockchain has its own need and has different mechanisms in place to fulfill those needs.

So, POW or POS? While POW has been the standard up until this point, many blockchains are opting for POS or slight variations of POS.

POW vs POS is at the center of endless debate, too complex for us to summarize here. It’s important to note that the choice between POW and POS is not mutually exclusive. Each blockchain has its own need and has different mechanisms in place to fulfill those needs. To be the world’s soundest form of money, POW may be the most suitable long-term solution to ensure bulletproof security and incentive structures. Alternatively, a “decentralized computer” like Ethereum (which is currently in transition to POS) might prove that POS is a more suitable mechanism for launching smart contracts and rewarding those who are contributing to its ecosystem.

At the end of the day, it’s up to each blockchain project to determine which consensus algorithm will work best for them. We're still in crypto's early innings, and time will tell which form of consensus works long-term.