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Why Proof of Stake Is Better Than Proof of Work (4 Reasons)




All consensus mechanisms are not created equal, and In this article, we will make a case for the superiority of the proof of stake system. This is a follow-up to our previous article explaining the difference between proof of work and proof of stake.


Now here are 4 reasons why proof of stake is the future, and why you need to get in on it now.


1. Fewer Energy Requirements



Proof of stake lifts the massive energy requirement from the network. One of the most limiting aspects of the proof of work mechanism is the massive energy requirements needed to run power-hungry mining rigs. Energy consumption associated with bitcoin equals out to around 130tWh per year according to the University of Cambridge. This is comparable to the whole of Ukraine or Argentina.


In our last blog, we covered the topic of bitcoin and its impact on the environment. So if you haven’t seen that yet, go check it out. We discuss in greater depth about Bitcoin’s energy usage, the role of renewable energy sources, and the future of bitcoin.


Proof of work incentivizes miners to produce blocks, in turn rewarding miners at the cost of inflation - as long as the coin appreciates in value, this inflation is ignored, and if appreciation slows down, then interest will also. Chips are becoming more efficient every day, however, this is not what protects the proof of work system, because it is the financial cost, not the computational work which achieves this.


A proof of stake network does not have this quality, because security is not based on the cost of electricity or computational output, but rather a more sophisticated system where miners are directly incentivized to support the network through various rewards and punishment based on their actions


While bitcoin can roughly conduct 5 transactions per second with an energy cost of 830kWh, and Ethereum 15 at 50kWh, a proof of stake coin like Tezos only requires 30mWh for 50 transactions in every second. This is in stark contrast to the proof of work system. Therefore, proof of stake coins of exponentially better in terms of energy usage and environmental sustainability



2. Faster


Speed is an important factor when considering the actual real-world viability of a coin. If a blockchain-based currency is going to support a future payment infrastructure, it needs to be able to handle a massive number of transactions reliably and cost-effectively. When using bitcoin in the real world, it is just too slow and much more difficult to liquidate for cash than a simple visa swipe or cash transaction. In addition, processing fees and price volatility can become very burdensome when managing many transactions.


With the bitcoin network, it may take up to 10 minutes before that transaction is actually verified, and in our fast-paced modern-day world, that is just too long. Furthermore, a block can be completed, however, it can still be taken over by another chain. So it is recommended to wait for up to 6 blocks to be completed before the transaction is fully completed - so this 10 minutes may end up being almost 1 hour. While in some contexts this is acceptable, in most it would expose the transaction participants to undue market volatility risk.


Bitcoin can conduct roughly 5 transactions per second, and Ethereum 15, but a proof of stake coin like Cardano could potentially manage up to 1 million, making it substantially more usable. Presently, Visa has a per second transaction capacity of 1,700. So, for a cryptocurrency to truly make it a worldwide standard, it must have a speedy transaction rate. This definitely rules out bitcoin, and much other proofs of work (and even proof of stake) coins in existence.


Mark our words, when it comes to real-world use of cryptocurrencies, the only way to go will be with proof of stake coins



3. Democratized and Accessible

One major flaw associated with the proof of work system is one of centralization. Bitcoin was created with the intent of being a decentralized network, but nowadays it is starting to look like this is no longer the reality.


Because PoW is so hardware intensive, centralized organizations (known as ASIC’s) have emerged, creating “mining pools” by compiling thousands of devices to generate an enormous amount of computing power, This gives these massive institutions a much greater chance of solving the problem first, and gaining control over the network


As a consequence, more than 50% of the total bitcoin mining power is controlled by only 4 mining pools (most are coming out of china). This unfair system means that smaller miners are extremely disadvantaged. If the miner is not able to compete in terms of computing power, they have no chance of winning.


Because POS rewards miners based on the proportion of coins that are frozen for staking, smaller contributors still have a chance of winning, however few “lottery tickets” they are holding.




4. More Secure



The security of bitcoin is one of the most talked-about, and important aspects of cryptocurrency. Yes, Bitcoin and other POS mechanisms are generally safe. They could be better…


The largest threat to the proof of work consensus mechanism is the alarming 51% attack. As mentioned at the start of this video, if an individual or combined force is able to harness 51% of a proof of work, then they could effectively alter a particular block in their favor.


This actually happened recently, when Verge Blockchain was subject to this type of attack. The perpetrators were able to walk away with 35 million in XVG coin, amounting to around $1.75M at the time.


The chance of someone fooling the network in a proof of stake system is possible but almost completely improbable. For someone to attack a proof of stake blockchain of this scale, the hacker would need to stake at least 51% of that cryptocurrency’s total available float. They would then need to go out into the open market and purchase more of that coin until they own 51% or more. This would drive the price up to the point where it would not make financial sense because the cost would be greater than the potential benefit of controlling the network


Additionally, if the remaining portion of the network realized what had happened, the perpetrator would lose all of their stake in the coin, representing a massive amount of money due to the inflated price associated with increased trading volume.


This makes it almost impossible to fool a coin running on a proof of stake system. If infinite security is your goal, this is where you should be putting your money.



Conclusion


While proof of work does have its place in the crypto jungle, it is clear that the proof of stake consensus mechanism is future-proofed beyond the scope of Bitcoin and its proof of work friends.


Therefore, The proof of stake consensus mechanism is favorable because it requires less energy to operate, is significantly faster at verifying transactions allowing for greater functionality, is less susceptible to centralization by cartels, and provides impenetrable security


Because of this, Ethereum, the second-largest cryptocurrency, is now in the process of transitioning from a proof of work system, to the superior proof of stake consensus mechanism. The date has yet to be confirmed, however, the Ethereum dev team is working endlessly to make the transition to Ethereum 2.0.


This transition will likely significantly improve Ethereum’s per second transaction number from 15 to thousands, improving scalability and cost per transaction.


So, whether you are interested in staking or simply investing - proof of stake should be on your watchlist of things to know


In our next article, we will introduce and explain the best POS coins to get involved with right now for massive gains





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