The consensus algorithm or protocol forms the core of every blockchain architecture. All thanks to the consensus protocols that facilitate blockchain decentralisation, immutability, privacy, transparency and security.
A consensus algorithm is a protocol that ensures all peers in a Blockchain network arrive at a common agreement concerning the current state of the distributed ledger. All nodes on the network are allowed to be part of the consensus processes, aiming at finding a mutual agreement that is a win-win for the entire network.
However, there are many consensus algorithms employed by blockchain today. With each algorithm bridging the gap of the other. Examples of consensus algorithms include PoS (Proof of Stake), DPoS (Delegated Proof of Stake), PoW (Proof of Work), SBFT (Simplified Byzantine Fault Tolerance), PoET (Proof of Elapsed Time), and PoA (Proof of Authority).
In this article, we are going to compare the two most popular consensus mechanisms, namely PoW (Proof of Work) and PoS (Proof of Stake). Stay tuned!
What's Proof of Work?
The genesis of the Proof of Work(PoW) algorithm is attributed to Cynthia Dwork and Moni Naor in 1993. It was reintroduced with the advent of Bitcoin by Satoshi Nakamoto in 2008 and historically originated from its usage in Hashcash by Adam Back to limit email spamming and denial-of-service attacks.
PoW works by solving a computational puzzle - a way of validating transactions by nodes on the network. The miner who got the code right gets an incentive (a cryptocurrency) in return. It's then the block (containing the transaction) is added to the blockchain.
The algorithm requires specialised computers called ASICs to compute complex mathematical problems. Furthermore, the Proof of Work mechanism is costly, requires high energy consumption, and has low transaction throughput, owing to a longer processing time. Apart from Bitcoin, Ethereum, BitcoinCash and Litecoin are other examples of other blockchain technologies using the Proof of Work model.
What's Proof of Stake (PoS)?
Proof of Stake(PoS) algorithm works by allowing a randomly chosen validator within the nodes on the blockchain to validate transactions. A validator that staked the highest coin is chosen to validate the next block. However, it also allows small coin holders to garner their coins to a reliable and trusted validator on the network, and they are incentivized based on the coin contributed following transaction validation.
PoS is developed to bridge the gap involved with the PoW model, such as low transaction throughput, longer processing time, high energy consumption, high cost etc. Sunny King and Scott Nadal are the brains behind the PoS mechanism in 2012.
Examples of cryptocurrencies using the PoS model include Binance Coin, Cosmos, Cardano, Polkadot, and Elrond. However, due to scalability issues, developers shifted Ethereum to run on Casper protocol - a PoS model.
PoW (Proof of Work) Vs PoS (Proof of Stake) - Which is the Best?
Like you read earlier, PoW based blockchains have a longer processing time, high computing power, and low transaction throughput. For example, bitcoin, a PoW based blockchain, confirms transactions every 10 minutes, and can only handle about 7 transactions per second. This has led to low transaction throughput and high processing time. PoW based blockchain require high computing hardware to power the blockchain, hence resulting in higher energy consumption and being expensive to employ.
PoS blockchain on the other hand validates transactions faster with higher throughput, low processing time and does not need any sophisticated hardware, hence, less energy and cheap to employ. PoS models use validators to verify transactions rather than all nodes trying to solve a computational puzzle as seen in the PoW algorithm.
While Bitcoin (a PoW based model) is the most adopted cryptocurrency, its scalability issue would disallow its usage for daily payment in the future, and the shift to PoS based blockchain would be on the rise owing to its high scalability. Hence, PoS based blockchain is the best and has more potential in the future.