Consensus Algorithms - Proof of Work (PoW) vs Proof of Stake (PoS)

At the time of Bitcoin's creation in 2008, users became aware for the first time of Proof-of-Work. Since then, many alternatives have appeared on the market, the main one being Proof-of-Stake.

It would not be an exaggeration to say that Proof-of-Work is the main idea behind Bitcoin: it is the one that serves as the basis for a distributed registry. The most famous blockchains that use Proof-of-Work today are:

• Bitcoin


• Litecoin


• Ethereum Classic

Can PoS replace PoW completely? In this article, we will consider the confrontation between these algorithms and try to understand which one is better.

The importance of blockchain consensus

The most important advantage of the blockchain is decentralization. This is a distributed database that jointly supported by the computers involved in it and called “nodes”. All nodes are registers, that is, they store the entire transaction history in a blockchain. The network cannot be destroyed by unloading any central server.

Information records, called “blocks”, are linked via a protocol program, and none of the existing blocks can be deleted or changed. Adding a new block is the only way to update a blockchain, any node can do this without any central command.

If a node ignores predefined standards and creates a block, other nodes ignore it. However, if an incompatible node continues to create blocks without adhering to standards and other nodes begin to create blocks on top of improper blocks, then a conflict will arise in the community. A consensus mechanism is needed to prevent the emergence of incompatible nodes that create so-called forks.

May exist malicious nodes that suppress other network nodes using a “distributed denial of service” (DDoS) attack. Such nodes can trigger false actions. Preventing this also requires a consensus mechanism.

Proof of Work

Before we start talking about Proof-of-Work, let's define mining. Mining is the complex computer calculations that must be performed to create a new block and add it to the blockchain. Those who perform these calculations are called "miners".

Proof-of-Work (PoW) is used when the miner's technical equipment solves complex math problems. The miner receives a reward in the form of cryptocurrency for adding a verified block to the blockchain. Finding solutions is a complex process that requires significant computational power. As soon as the computer finds a solution, it sends a message to other computers in the community for verification. The solution is easy to verify because other computers are answered.

The key feature of this mathematical problem is asymmetry: it should be moderately difficult for the miner, but rather simple for the network as a whole. This is achieved using cryptography. Every miner in the network tries to find a solution to the problem first; at the same time, it can actually be found only by the direct enumeration method, therefore, a successful solution requires many attempts.

An example, perhaps a little fantastical, but illustrative. Imagine that you were handed a keyboard with several millions of numbered keys. You are looking for exactly the key that you need to perform the task correctly, but you don’t know its number, so you search through everything. A crowd around you is also looking for the right key. Suddenly you found the right key, telling everyone “guys, I found the key, its number is 22 875”. Everyone around is starting to check the key number 22 875, and oh yeah, this is it. The one who first found the key gets a prize. Then each is given another keyboard with a few more millions of keys on it. It all starts again.

Bitcoin's complexity algorithm is programmed in such a way that 1 block in the network is mined in about 10 minutes. For this purpose, there is an automatic system that adjusts the difficulty depending on how long it took to mine 2016 blocks, namely:

• when the time to mine a given number of blocks increases, the difficulty decreases;


• when the time decreases, the complexity increases.

The difficulty of mining in the Bitcoin network is changed by adding or reducing the number of zeros at the front part of the target hash.

Over the past 3 years, the complexity of mining has increased more than 5 times. In 2020, this value was 10 T, and today it is 52 T. This is due to the growing interest in mining and the emergence of new bitcoin mining farms.

Unfortunately, while the mining company finds solutions in the real world, it also uses a large number of real-world resources. Mining requires the constant purchase of equipment and a huge amount of electricity. People concerned about the planet and the environment are beginning to raise the issue of excessive use of electricity for mining. It takes a lot of energy to run computers or clusters that are mining. The constant turnover of equipment, arising from the fact that the process quickly wears out the components of computers, creates a massive warehouse of outdated parts. From an environmental point of view, it hurts the planet.

In addition, the fact that mining requires serious computing equipment, costing more than the average person can afford, means that the mining society consists mainly of rich and powerful people. This conflicts with the idea of decentralization in a big way, it creates the risk of being seized by a person who controls more than 51% of the computing power of the entire mining ecosystem. Considering the enormous costs of the equipment, which will allow you to make money, it is unlikely that the average person will be engaged in this business.

In 2024, mining is less profitable. According to CoinGecko, only 65 countries in the world are profitable for mining. Of these, only 5 are in Europe.

The report states that the cost of mining 1 BTC is $46,291. Such costs limit the ability of ordinary users to participate in the consensus and stimulate the development of alternative algorithms such as Proof-of-Stake.

Proof of Stake

The idea of Proof-of-Stake was proposed for the first time on the bitcointalk forum back in 2011; a year later, the first cryptocurrencies using this method appeared - Peercoin, ShadowCash, Nxt, BlackCoin, NuShares / NuBits, Qora and Nav Coin.

Unlike Proof-of-Work, where the algorithm rewards miners who perform calculations to validate transactions and create new blocks, in Proof-of-Stake, the creator of a new block is selected by the system in advance based on its state, that is, its share in the total cryptocurrency.

The idea of a proof-of-stake is to solve the problem of proof-of-work associated with large amounts of electricity. Instead of the computational power of the participants, counts the number of cryptocurrencies in their account. Thus, instead of using a large amount of electricity to solve the PoW problem, the PoS participant has a limited percentage of possible transaction checks. The limit matches to the amount of cryptocurrency held by the participant.

Proof of Stake (PoS) is used when the miner blocks a predetermined number of coins to check a block of transactions. Cryptographic computing in PoS is much easier for computers. You only need to prove that you own a certain percentage of all coins available in a given currency. For example, if someone owns 2% of the total Ethereum (ETH), he can get 2% of all transactions through Ethereum. Some people think that PoS will be a fairer system than PoW, since technically anyone can become a miner. The PoS offers a linear scale regarding the percentage of blocks that a miner can validate based on the share of that person's tokens in the blockchain. This means that a person who has ten times more coins (for example, one has $10,000, and another has $1000), can create only 10 times more blocks than another.

Favorable ground for community development and the loyalty of animal rights activists encourage crypto project creators to use PoS. Thus, on September 15, 2022, the second most popular Ethereum blockchain switched from PoW to PoS. This was made possible by the merger of the Beacon Chain, launched in 2020, with the main Ethereum network.

Over the past year, 2 large L1 solutions have appeared on the market, namely:

• Aptos


• Sui

Both blockchains use Proof-of-Stake as a consensus algorithm. Validators need to stake some of the APT and SUI tokens in order to keep the blockchain operational.

Some believe that switching to PoS could contribute to a wider participation of the world community, as well as more complete decentralization of capacities. By snatching mining from the hands of multi-ASIC farms, mining work will be evenly distributed throughout the network, which will lead to a more democratized system.

Other models of the Proof-of-Stake consensus algorithm

The Proof-of-Stake consensus algorithm has several variants. The most popular of them are:

• Delegated Proof of Stake


• Leased Proof of Stake


• Pure Proof of Stake

In the Delegated Proof-of-Stake (DPoS) architecture, network participants have the right to delegate the production of new blocks to a fixed number of delegates. On average, the number of delegates ranges from 20-100 validators.

Users determine who among the delegates will confirm new blocks using a voting mechanism. This process is continuous and users can replace ineffective delegates at any time.

Leased Proof of Stake (LPoS) is a consensus mechanism used, in particular, in the Waves blockchain, where users lease tokens to a node that intends to act as a validator.

LPoS protocols are best used in networks that have high technical requirements for launching a full-fledged node. This way, small token holders can pool their assets and increase their chances of getting a share of the network's transaction fees.

Pure Proof of Stake (PPoS) is a highly democratized form of PoS used in Algorand, a blockchain project focused on the development of DApps.

Unlike other forms of PoS, the PPoS mechanism does not have a built-in control system to prevent malicious node activity or potential security errors. Instead, PPoS offers low minimum betting requirements for participation in the network.

You only need one ALGO token to become a validator on the Algorand network. While in Ethereum, the minimum bet size is 32 ETH. This approach creates a system in which it will be financially unprofitable for unscrupulous participants to hijack or disrupt the network.

Other consensus algorithms appear on the market. For example, the proportionality factor “Proof of Space”, based on how much storage space a node has. There is also PoET (proof of elapsed time) and a number of other algorithms, most of which have not yet been confirmed. In fairness, it should be said that technology continues to evolve exponentially, and it is impossible to predict what may happen or disrupt the balance in the mining world.

Why does the Proof of Work continue to evolve and exist?

While PoS is definitely better than its rival, we believe that PoW will not disappear in the next ten years, its need during mining will increase.



PoW provides many benefits for participants and industry that are not in PoS.

Offer distribution. Proof of Work is much better than its opponent for distributing currency sales. Although miners are paid for their work, the costs associated with checking the found solutions require them to sell their stock of coins rather than keep them. This creates a more even distribution and liquidity in the market. The accumulation of assets is not profitable for the miner, as in the Proof of Stake algorithm, so the miner will receive a large profit for buying and selling, and not for holding.

SPV consensus and clients. In Proof of Work, when a blockchain is divided into two chains due to social or technical problems, it is much easier to determine which one has the best mining support. Miners, as a rule, follow the chain that has the largest number of completed works. This creates a more robust blockchain with less likelihood of double payment or verification.

Inflation management. The Proof of Work algorithm is excellent for the development of inflated currencies, it can at any time change the complexity of the equation to correct the creation of new coins. In the Proof of Stake algorithm, there is no cooperation between technologies and markets to regulate and maintain deflationary offer. Mining is determined by balances in the wallets of coin owners. The blocks are produced according to the established schedule, the distribution of new coins is determined proportionally, based on how many cryptoactive owners have unspent coins. In essence, the “Proof of Stake” does not leave the market mechanism able to regulate inflation. Theoretically, the development of coins through the PoS algorithm occurs stably, regardless of their value and profitability, but this completely destroys any market rules that control the development. As a result, even with a general shortage of supply, supply errors will damage the PoS-based monetary system, leaving no room for stability and hampering robust economic growth.

Quality of equipment. While working with the PoW protocol, the mining community is constantly improving the equipment used and is looking for less energy-intensive solutions. Using the best equipment is often exponentially better than less expensive counterparts when working through the PoS algorithm.

Reducing the possibility of a global attack. PoW encourages ecosystem forces working to improve the community by encouraging investment in the system — miners who use more computing hardware for the blockchain and earn more cryptocurrency. First of all, it promotes honesty, because ensuring the integrity of transactions also guarantees the miner remuneration. In addition, as more facilities are commissioned and better technological equipment is introduced, it is in the interests of the miner to invest more funds in this industry in order to compete in the market.

Although miners still receive a commission for each transaction they process, they still need to compete for part of the network to get a higher chance of mining, for example, Bitcoins cryptocurrency. It is much more difficult to obtain a sufficient hash rate (51%) to launch an attack on the system - this action becomes too expensive for a hacker, gives precious little reward, especially compared to mining. Today, according to experts, such an attack will cost more than a billion dollars.

Safety. The PoS algorithm creates higher security threats to the system that are not inherent in the PoW system. PoS consensus is not fixed in the physical world (with hashing equipment in PoW). Most currencies that rely on PoS also use additional mechanisms to solve security problems, often a combination of both PoS and PoW.

Forking and double payment. Proof of Stake has a serious problem: if there is a plugin the blockchain (random or deliberate), the rational behavior of users of this network is to separate the blocks on both branches. With the help of the PoW algorithm, this behavior is irrational. By splitting resources into several branches, the miner reduces the probability of finding a block. The optimal strategy in the PoW system should always be executed on one branch, since rational behavior in the PoS system is to select blocks on top of all branches that the user knows about. This problem makes it easy to make double payments or other types of attacks that come with a branching blockchain.

The rich are getting more. Unlike PoW, where the miner receives money for doing work, in the world of PoS, the more assets you own, the more you earn. In addition, in accordance with this algorithm, changes in the code of the protocol are not determined by the miner agreement, they are determined by voting wallets. The protocol weighs votes based on the stock of wallets. Therefore, the one who has the most money has the most influence on the vote. This means that a small group of wealthy miners can control the entire mining network, voting for the changes that benefit them. Within such a system, a large organization or a rich group of people, such as the central bank, can use the money to buy huge amounts of coins in the PoS algorithm, holding them until their wallets are eligible to vote.