Which is Better: Proof of Work or Proof of Stake (PoW vs PoS)?

Neither proof of work nor proof of stake is better across the board. Both let a network agree on one version of its blockchain without a central authority. Proof of work (PoW) ties that agreement to computing power and electricity, while proof of stake (PoS) ties it to coins locked up as a deposit and uses far less energy. Bitcoin runs on proof of work, and Ethereum has run on proof of stake since 15 September 2022.

Both solve the same problem in different ways. This guide explains how each one works, where they differ and which trade-offs decide the question for a given network.

What is a consensus mechanism in crypto?

Cryptocurrencies are decentralised, which means they do not need a central entity to manage their activities. Instead, thousands of computers keep the same blockchain, and some of them may fail or try to cheat. A consensus mechanism is the rule that lets them agree on one shared version of that ledger, and above all it stops anyone from spending the same coin twice.

Every consensus mechanism answers two questions: who gets to add the next block, and what does it cost an attacker to break the rules? Proof of work and proof of stake answer them differently.

What is proof of work (PoW)?

Under proof of work, miners compete for the next block. They bundle waiting transactions and try number after number on specialised machines until the block's hash falls below a target set by the network. The first miner to find a valid number adds the block and collects the block reward, on Bitcoin currently 3.125 BTC per block plus transaction fees. Hence the name: miners must prove that they have done a certain amount of work.

The trick lies in an imbalance. The search takes a lot of electricity, while checking the result takes a fraction of a second, so every node can verify the work itself. To keep one block roughly every ten minutes, Bitcoin adjusts the difficulty every 2,016 blocks to match the computing power available. Our guide to bitcoin mining shows what that means in practice.

Security comes from cost. Anyone who wants to rewrite past transactions has to redo the work for all later blocks and outpace the rest of the network, so an attacker would need immense computing power and energy. Small PoW networks with little computing power are more exposed to these so-called 51% attacks.

The idea is older than Bitcoin. In 1997, a system called Hashcash already used a proof of work to make spam emails expensive. In the Bitcoin white paper of 2008, Satoshi Nakamoto applied the principle to a payment network: anyone who wants to break a rule has to pay for computing power first.

What is proof of stake (PoS)?

Under proof of stake, locked-up capital replaces computing work. Participants lock coins as a deposit and become validators, and on Ethereum this takes 32 ETH and three pieces of software. The network divides time into fixed slots, 12 seconds each on Ethereum, and randomly selects one validator per slot to propose the next block, while others check it and vote on it. So who may create the next block depends on chance and on the coins staked: the more you stake, the more often your turn comes on average.

Security comes from the deposit. A validator who breaks the rules, for example by proposing two conflicting blocks, loses part of its stake. This is called slashing, and according to ethereum.org it ranges from less than 0.1% for a single validator to the entire stake if many are punished at once. Honest validators earn rewards in coins, and instead of miners they are the ones who validate transactions.

Proof of work vs proof of stake: the key differences

The table compares the two mechanisms on the points that make the difference in practice.

Advantages and disadvantages of proof of work

• Strength, costly attacks: An attack takes real resources outside the network, namely hardware and electricity.
• Strength, long track record: The mechanism has run on Bitcoin since 2009, and anyone can easily verify the result.
• Strength, open access: Anyone with hardware and electricity can take part, with no need to own coins first.
• Weakness, electricity: High energy consumption is the drawback raised most often against proof of work, because of its environmental impact.
• Weakness, concentration: Mining usually only pays with specialised machines and cheap power, so much of the computing power gathers in large mining pools.

Advantages and disadvantages of proof of stake

• Strength, little electricity: Proof of stake uses far less electricity than proof of work, because the computing race is gone.
• Strength, little hardware: A normal computer is enough, and staking pools open the mechanism to amounts below 32 ETH.
• Strength, direct penalty: Whoever cheats loses their deposit inside the network itself.
• Weakness, shorter track record: The mechanism is younger and less battle-tested than proof of work, and its rules are more complex.
• Weakness, weight of capital: Those who stake a lot have more influence, and large staking providers can bundle many votes.

Which is better: proof of work or proof of stake?

Neither is better in general, because it depends on what a network needs. Proof of work ties security to energy and hardware, in other words to costs outside the network. Proof of stake ties it to capital inside the network and saves electricity. Ethereum's developers consider proof of stake economically more secure, while bitcoin supporters point to the longer track record of proof of work. Both views have their reasons, and both mechanisms secure networks holding large values today.

The consensus mechanism says nothing about price. Bitcoin's capped supply does not come from proof of work but from a separate rule in the protocol: no more than 21 million bitcoin will ever exist. Our five criteria show what else to check about a cryptocurrency.

Why did Ethereum switch from proof of work to proof of stake?

Ethereum launched with proof of work in 2015 and moved to proof of stake on 15 September 2022 with the upgrade known as The Merge. According to ethereum.org, this cut the network's electricity use by about 99.95%. Ethereum has had no miners since then, and validators have taken over their role. The switch did not lower fees and was never meant to, because it changed the consensus mechanism rather than the network's capacity.