PoW vs PoS: which algorithm is cooler

The question about what algorithm to mine with and what it is all about became the most topical after the news about ETH’s transition to Proof-of-Stake. Then even the laziest of people googled the differences between PoW and PoS.

In a nutshell, they are two quite different virtual coin mining algorithms. They have their own features, positive and negative sides. But let’s not say the obvious things, but let’s go over the prufs. Take 5-7 minutes of your precious time to read a review on this, I’m sure, interesting topic.

To begin to understand the algorithms you need to remember that mining is a computer calculation of a high degree of complexity. Their purpose is to create a block and add it to the blockchain.
Consensus mechanisms (what we call algorithms) make it possible to mine virtual coins efficiently and safely.

A few words about the PoS algorithm

Initially it was talked about more than 10 years ago. In 2011 at Bitcointalk forum. Then crypto appeared, designed for this particular consensus mechanism. Namely:

• ShadowCash;
• Nxt;
• BlackCoin;
• NuShares/NuBits;
• Qora;
• Nav Coin.

The main idea of this algorithm is to make mining available to more people. This is done by reducing power consumption. You will not need huge computing power. The amount of crypto in your wallet will be taken into account.

But it also implies its own limitations. Which we will talk about in the next section.

The main idea of this algorithm is to make mining available to more people. This is done by reducing electricity consumption. You will not need huge computing power. The amount of crypto in your wallet will be taken into account.

But it also implies its own limitations. Which we will talk about in the next section.

Disadvantages of the algorithm

1. With PoS the transaction verification percentage will correspond to how many virtual coins are in your account. This is what we meant by limitations.
2. Not as strong a level of protection compared to the same PoW algorithm.
3. You can’t mine BTC and other expensive currency on it. Recall that bitcoin is rightfully considered the king of cryptocurrencies. In the market of virtual coins it is valued most of all. But also its mining is incredibly difficult. And you will definitely not be able to mine bitcoin at home.

Advantages of the algorithm

1. You can even mine from your computer. But you will be required to make a cryptocurrency investment. For example, if you are going to mine OKCash, you have to have a certain amount of these virtual coins in your account to start farming them.
2. Doesn’t require a significant investment. You will not have to buy expensive equipment. Mining can also take place on video cards. As long as you have crypto in your virtual wallet.
3. Popularization of virtual coin mining. PoS is pushing the global community to get more people mining. The relatively simple principle of farming allows almost anyone to feel like a “miner” on this consensus mechanism.

Talk about PoW

A completely opposite algorithm compared to Proof-of-Stake. It is based on the processing power of expensive and power-hungry asics. This is how you find blocks and put them in the blockchain. For that you get a reward.

Solving these challenges is an incredibly time-consuming process. It requires not only expensive equipment, but also a lot of electricity.

But what is the point of this mathematical problem?

Imagine you are invited into a spacious room where thousands of red apples are scattered. But you are asked to find the green one. You start looking for what’s needed. At the same time, other people do the same, regardless of you. This action is more like a competitive process. 

Suddenly, you can find the green apple. And you say, «Guys, there it is». The search stops. You give the fruit you want to the customer. You get a reward for your find. Then everyone is invited to enter the next room and repeat the process of finding the green apple.

This metaphor perfectly shows the process of virtual coin mining on PoW. Only instead of a green apple, for example, a block of BTC. Except that in contrast to this example with fruit, in real life the one who gets the coveted bitcoin will spend a lot of resources. We are talking about investing in expensive equipment, renting/building facilities to house these devices, and paying for electricity.

Pros of PoW

1. The ability to mine bitcoins and other expensive virtual coins.
2. High network security features. Due to the nature of mining, it is more difficult for attackers to mislead others.

Disadvantages of this algorithm

And here the list will be much more impressive.

1. You’re unlikely to be able to effectively farm crypto on PoW while at home.
2. You will need expensive equipment to mine virtual coins with this consensus mechanism for a payback. A single asic can cost from thousands of dollars. But given the increasing complexity of mining the same bit, you’ll need several such devices.
3. To accommodate the equipment you need, think about renting a special room. Which will have enough space. Also do not forget that asics tend to overheat. These rooms will have to be equipped with special cooling systems.
4. Colossal consumption of electricity. That especially makes itself felt because of the global crisis and the geopolitical situation in different regions of the planet.
5. According to eco-activists, bitcoin mining causes significant damage to the environment. Mining this virtual coin with the help of specialized farms provokes the emission of a large amount of carbon into the atmosphere. Despite the fact that some companies specializing in bitcoin farming are starting to switch to renewable energy sources, the environmental issue is still relevant.

Why ETH «ran away» from PoW to PoS

ETH mining used to involve a lot of electrical energy. As we said above, the PoW algorithm requires a lot of resources for its efficiency. And the need for expensive devices made ether farming inaccessible for most people.

The main goal of Ethereum’s move to PoS is to try to bring ETH closer to solving the blockchain trilemma.

What is the blockchain trilemma

It is a theory that defines the main problem of the distribution network. It is about the three main characteristics of blockchain:

• performance (scalability);
• security;
• decentralization.

So, based on this theorem, it can only have two of the three. The transition of ETH to another algorithm should have solved this problem. But something clearly went wrong. 

The consequences of switching ether to a different algorithm are

1. The need for assets to mine ETH has arisen. As we said above, to mine crypto on PoS you have to have a certain amount of the right virtual coin.
2. It has become harder to withdraw funds. This is due to the final merging of the first and second versions of the blockchain.
3. Falling yields of stacking – storing assets in a virtual wallet to support actions on the blockchain.
4. At the same time, ether mining could, in theory, become accessible to many people, there is the possibility of lower fees and increased decentralization of the network.

Which algorithm is the future of blockchain?

This is quite a debatable question. There are many arguments for PoS or PoW, as supporters of different algorithms can argue for PoS or PoW.

We will try to guess the likely outcome based on facts and global trends.

PoW will probably exist until the last minted BTC coin is mined. According to bitcoin developers, that won’t happen before 118 years from now.

For now, there is an objective need for both the first and second consensus mechanisms. With their positive and negative sides, these algorithms will continue to coexist for decades to come.

And finally

It is impossible to state unequivocally that the first algorithm is better or more effective than the second. In 2022, both PoW and PoS are proving their effectiveness and have millions of supporters around the world (as well as opponents, by the way).

Some virtual coin creators are creating hybrids – crypto that can be mined using both Proof-of-Stake and Proof-of-Work