What Is the Difference Between POW and POS?

Introduction

When we talk about cryptocurrency, you may hear a lot about POW(Proof-of-Work) and POS(Proof-of-Stake), both are algorithms that blockchain protocols use to validate transactions and related to mining rewards. In this article, we will explain the definition of POW and POS, and the differences.

What Is Proof-of-Work (PoW)?

Definition and background:

• A proof of work is a piece of data that is difficult (costly, time-consuming) to produce but easy for others to verify and satisfies certain requirements. It is a random process with a low probability to produce a proof of work, which means that a lot of trial and error is required on average before a valid proof of work is generated. The concept was invented by Cynthia Dwork and Moni Naor in 1993, then the term "proof of work" was coined and formalized in a 1999 paper by Markus Jakobsson and Ari Juels. In the early stage, it is using Hashcash for preventing e-mail spam.

• On every email, which requires proof of work on the email's contents, that means the computer should do hash computations before sending an e-mail, and the computer that receives the e-mail will verify the computation before receiving the e-mail. So legitimate emails will be able to do the work to generate the proof easily (not much work is required for a single email), but mass spam emailers will have difficulty generating the required proofs (which would require huge computational resources).

For blockchain application:

• Proof of work was later popularized by Bitcoin, it also uses the Hashcash proof of work system. Take the example of Bitcoin, In order for a new block to be accepted by network participants, miners must complete a proof of work that covers all of the data in the block. To be more specific, you must prove to others that you have spent a certain amount of computing power when you upload a new block every time. The proof is a certain string of meaningless strings that you added to the block, and after adding this string, the hash value of your block should exactly less than a certain number. The characteristics of the hash function tell us that you have no tricky way to solve this math problem but to try the string one by one. So, everybody knows that you really spent your time giving such a string and you are an honest person that can be rewarded by Bitcoin.

• Each block contains the hash of the preceding block, as a result, each block has a chain of blocks that together contain a large amount of work. Changing a block requires regenerating all successors and redoing the work they contain. This protects the blockchain from tampering.

• In conclusion, POW is a model of distributionaccording to work. The higher the computing power and the longer time you spent on mining, the more digital currency will be obtained. If a node has 15% of the computational power of the entire network, then the node theoretically has a 15% probability of obtaining the right to bookkeeping and rewards. Bitcoin, Litecoin, and many others use the PoW method. So here come two main problems: one is that it will consume a lot of energy to run computer groups which calculate several potential solutions, which is harmful to ecological, another is a potential danger of 51% attack, if someone has more than 50% computational power, then 51% attack may occur, thereby destroying/tampering the blockchain network. However, it is the foundation for consensus in permissionless blockchains and cryptocurrencies.

What Is the Proof-of-Stake (PoS)?

Definition and background:

Proof of stake (PoS) works by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency, which means generates interest through holding coins and rewards validators/nodes. It is a different method to validate transactions. Unlike a proof of work (PoW) protocol, PoS systems do not need extreme amounts of energy consumption. People believe that it is the alternative protocol to PoW, since PoS uses a pretty insignificant amount of power consumption in comparison and it can avoid computational power centralize.

For blockchain application:

• The first functioning use of PoS for cryptocurrency was Peercoin in 2012. It is the system that holds the same purpose as PoW of validating transactions. According to the number of coins you hold, decide on who has the right to validate the next block, instead of miners cracking cryptographic puzzles to verify transactions, compared to PoW. The anticipated will not get block rewards, instead, they collect network fees as their reward.
• PoS, trying to solve the situation where a lot of resources are wasted in the POW mechanism. This mechanism determines the right to validate by calculating the percentage of the total currency you are holding and the length of time you own the currency. In the POW system, it usually requires a lot of power and time to find a qualified nonce. In order to avoid this waste, the PoS system uses a faster algorithm:

SHA256（SHA256（Bprev）,A ,t）≤balance(A)m

• H is a Hash function; t is UTC timestamp; Bprev refers to the previous block; balance(A) represents the balance of account A. The only parameter that can be adjusted continuously is t. The m on the right side of the equation is a fixed number. Therefore, the larger the balance (A), the greater the probability of finding a t. In the blockchain, the range of t is generally limited. For example, the time that can be tried cannot exceed 1 hour with the standard timestamp, that is, a node can try 7,200 times to find a qualified t. Therefore, in PoS, the more balance of an account, the easier it is to find the next block under the same computing power.
• That is each node use Coin age to proves that it is eligible for validation. Coin age = number of tokens x time of holding tokens, each token generates 1 coin age per day. The representative of the PoS mechanism is Ethereum (the fourth stage), so let's use Ethereum as an example. Assuming that your account holds 100 Ether for 10 days, then your currency age = 100 x 10 = 1000. At this time, your probability of obtaining the right to validate is 10 times that of the 100 coin age. When you mine an Ethereum block, your coin age will be cleared and start to accumulate again. POS is like deposit money to the bank. The bank calculates the interest based on the amount of digital currency you deposit and the storage time.

• In conclusion, the node for validation is determined by the number of coins held and the length of time, so the waste of resources caused by finding a qualified nonce can be avoided. If you want to launch an attack in the POS system, you must collect more than 50% of the total currency, not only the cost will be very large, but also be difficult to execute. Through this protocol, a consensus is reached between the blockchain networks, and by which can solve the trust problem of the decentralized network. However, participants with rights and interests can reserve coins in order to get interested, so people are not willing to sell coins, and monopoly is likely to occur.

Difference Between Proof of Work (PoW) and Proof of Stake (PoS) in Blockchain:

Let's make a table comparison:

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