With the arrival of The Merge, the discussion about the two most popular consensus protocols in crypto networks so far surfaced on the networks: Proof of Work, which is used by Bitcoin and other crypto projects (and was used by Ethereum ) and Proof of Stake, which is currently used by Ethereum and most new altcoins. Today we are going to review both protocols, defining their pros and cons and trying to determine if one is better than the other.
Proof of work, or proof of work is the first consensus protocol used in cryptocurrencies, this protocol is based on the brute force of processing of the computers that support the network.
In this type of protocol, the network participants make the processing of their PCs available to the network to try to be the first to decipher a mathematical operation, this process is called mining. The first miner who manages to solve this operation will be the one who validates the new transactions and in exchange will receive a reward in the currency of the network. This system is based on the competition of all participating computers in the network to be the first to decipher this challenge, and it protects itself from possible malicious attacks through the energy cost of solving the mathematical problem and the economic cost of the equipment used. For this end. These costs make the risk:benefit ratio of attacking the network very high, discouraging possible attackers. Proof of Work is then based on the conversion of these resources (time and energy) to new currencies issued as rewards.
Proof of Stake, or proof of participation, on the other hand, is a protocol that is based on the participation of holders of the network's currency, so that anyone can put their "frozen" assets in nodes and participate in the network. In this type of consensus, a node is randomly selected that will be the one that will validate the new transactions in exchange for a reward in the currency of the network. If, instead, you wanted to maliciously alter the network, you could lose a part of your frozen assets, because these are available to the network. In addition, in this type of protocol there is a wide variety of consensus mechanisms to guarantee the transparency of the network.
Today Ethereum works through this protocol in which any user can participate as a node by placing 32 Ether as collateral for the network, which will be used by the network to ensure that this user will act in a beneficial way for the network.
In this way, just as Proof of Work converts energy into new coins, Proof of Stake is based on the opportunity cost of having those coins âlockedâ.
Now, what are the pros and cons of each?
One of the pros that stands out most about Proof of Work is its robustness, being a protocol that makes hacking it extremely impractical and expensive, but on the other hand that same robustness makes networks like Bitcoin, for example, slow and not very scalable, with a very limited ability to create new blocks. On the other hand, another of its cons is the centralization that exists in Bitcoin mining, since most of the nodes that watch over the network belong to private companies, and starting a new node independently is extremely expensive to be made by private persons.
In addition, another of the great controversies of Proof of Work is the environmental impact it has, which derives first of all from the energy expenditure that the entire Bitcoin network represents (remember that this system is mainly based on exchanging energy for bitcoin), which is equal to that of a small country, and secondly, the impact of electronic waste that involves keeping the hardware updated in order to continue mining. It is estimated that an ASIC (The specialized computer for bitcoin mining) is renewed every approximately one and a half years.
The change from Ethereum to Proof of Stake has to do mainly with this point, since it does not require more computing power than an ordinary home PC, having a great advantage over Bitcoin in terms of environmental impact. On the other hand, Proof of Stake also has the problem of centralization with respect to validator nodes, since starting one in a particular way is also very expensive, forcing users to resort to stake pools of private companies. There is also another factor in this centralization and that is that the largest nodes generally belong to the creators of the network and the first investors, since they are the ones who have the most tokens in the network. Tokens that were created in a âpre-minedâ way, before the operation of the main network.
Another disadvantage of Proof of Stake networks has to do with the incentives to stake that are given to users, that is, the rewards for having their assets âlocked upâ. These incentives increase inflation in the native currency of the network, compared to the PoW incentives in Bitcoin, forcing all users to stake and punishing those who are not.
In conclusion, neither of the two protocols is objectively better than the other. Both have their pros and cons, they pursue different objectives and respond to different technologies and needs, however it is important to know the problems involved in each of these protocols if we want to participate in the crypto ecosystem to opt for the network that best matches our needs. interests and our long-term goals.
