If you’ve read our introduction to the blockchain, you’ll know that Proof of Work is a fundamental component of the blockchain system of checks and limitations.

Vitalik Buterin, the creator of Ethereum, is planning a hard form to transition his cryptocurrency from PoW to PoS. But what does this mean?

For starters, cryptocurrencies modelled on Proof of Work are large consumers of energy. As Proof of Work becomes more difficult with each block, this energy use will only rise exponentially. Proof of Stake is much more environmentally friendly and cheaper to maintain as digital currencies become more actively used.

Proof of Work

Basically, Proof of Work (PoW) makes the mining of cryptocurrencies, difficult. In turn, this ensures that each mined coin has a real-world equivalent of work expended in the computational process – something that costs the miner money and energy to do.

However, Ethereum users have pointed to the cost and difficulty of PoW and are proposing a different means of validating transactions – Proof of Stake. Like PoW, Proof of Stake will be an algorithm and means of encrypting transaction data as means of distributing the ledger.

Proof of Stake

Proof of Stake (PoS) means to achieve this in a starkly different way: instead of having miners compete to solve mathematical problems, PoS would assign the creation of a block to miners (instead called forgers) in a deterministic way. The forgers are selected based on their stake, or their wealth.

This stake consensus protocol is called Casper, and it will create a validator pool that any Ethereum user can join. From this pool, forgers will be selected.

Cause for Concern

The fundamental problem PoS activists have to solve is that of safety from hacking. Proof of Work makes changing or altering blocks almost impossible for external hackers, and the sheer cost of mining makes the risk of attack equally expensive. Essentially, you would need more money than you’d end up stealing. This makes PoW networks incredibly safe.

The cheaper process of forging with PoS networks suggest that attacks would be more easily mounted. As such, the PoS algorithm would need to be absolutely unbreachable in order to prevent the risk of attack.

Another concern voiced by PoW users is that Proof of Stake can lead to large players (those with the largest Ether stake, for instance) profiting over smaller players.  It is possible that this system will lead to digital wealth disparities that can’t be overcome. What made PoW models so popular was the decentralised nature of the vending process. Many critics of PoS worry that large Ether holders could essentially take up the position of centralised authority if their large Stake makes them the de facto forger in most cases.

Conclusion

In summary, PoW is expensive for miners but provides a structure that is incredibly safe from attack. The downward pressure of PoW systems is a result of miners selling coins as soon as they’re mined. PoS is far more energy and cost efficient.  But it could potentially undermine the safety of previously PoW networks and lead to a monopolisation and gate-keeping of the cryptocurrency’s production of coins.

As the shift has yet to be made by large players like Ethereum and Bitcoin, only time will tell which system is the most conducive to the continued growth of cryptocurrencies. It may be a mixed system that will provide the safety and economic sustainability that users and miners are looking for.