Proof-of-Work and Proof-of-Stake pertain to how mining works and how transactions are verified on the Ethereum Blockchain. Before we dive into the technical aspects of both of these philosophies, let’s get a little background on the ETH Blockchain. Essentially, Ethereum is an open source platform based on Blockchain tech that allows developers to create their own fully decentralized applications and to deploy smart contracts.
Let’s dive into the PoW and PoS concepts, then shall we?
What is the Proof-of-Work concept?
The Proof-of-Work concept existed before the inception of Satoshi Nakamoto’s bitcoin. Bitcoin was originally developed in 1993, but not acquiring its name until 1999. PoW’s primary goal was to protect computer and network systems from DoS or denial-of-service attacks.
PoW allows for distributed and trustless consensuses. This means that if you want to receive or send assets to someone, there is no need to rely on third parties or intermediaries to verify the transaction.
For example, in your day to day affairs, every time you make a payment or buy something, you always rely on a third party such as a banking institution or PayPal. These intermediaries possess information pertaining to you and your transactions, all of which is stored in their private databases.
However, with cryptocurrencies like ETH and BTC, all transactions and exchanges are stored on a publicly accessible Blockchain on which all transactions can easily be verified and are immutable. Thus, there is no need for a third party.
Diving deeper into the technicalities of PoW
The Proof-of-Work concept is utilized by miners when they use computer hardware to solve complex mathematical calculations in order to verify Blockchain transactions and get a reward for completing a block on the network.
Every single transaction pertaining to a Blockchain is stored or recorded on blocks; like pieces of 8 x 11 paper that is filled with transaction data. Each block has information pertaining to the previous block and information is input via a linear sequence. Blockchain transactions are added to blocks by miners.
Now, let’s go through the PoW process in terms of mining. All of the transactions on a Blockchain are grouped together in what is known as a block. In order for these transactions to be deemed legitimate, they must be verified by miners. As was mentioned before, this is done by solving mathematical algorithms, which are also known as proof-of-work problems. Following this, a miner that solves the PoW problems of a whole block gets rewarded in some cryptocurrency, hence the term Proof-of-Work.
Once a Blockchain miner successfully completes a block, he announces it to the whole network. The Proof-of-Work philosophy is used in multiple Blockchains, not just Ethereum.
However, there is a big issue with PoW mining. For example, if someone controls over 50% of a networks computation power, even 51%, that individual could possibly make all of the network’s transactions invalid. This bad actor could then go on to create fake blocks which would make all of the other blocks on the network go out of sync.
Learn how Proof of Stake differs from Proof of Work in the full article on MLSDev blog.
