Proof of Work

Proof of Work is a decentralized consensus mechanism that dictates who gets to update transactions on a blockchain. It basically means that to gain the right to update the next block of transactions, you need to provide proof to a challenge that is hard to solve yet can be easily verified by the network. Hence providing proof that you’ve done work in solving it. In most cases this means requiring members of a network to expend effort solving an arbitrary mathematical puzzle.

Proof of work is used widely in cryptocurrency mining, for validating transactions and mining new tokens. Due to proof of work Bitcoin, and other cryptocurrencies on proof of work networks, can process transactions peer-to-peer in a secure manner without the need for a trusted third party. A major problem with proof of work at scale, is that it requires huge amounts of energy, which only increases as more miners join the network.

Proof of Stake

In a proof of stake system, staking serves a similar function to proof of work’s mining, in that it’s the process by which a network participant gets selected to add the latest batch of transactions to the blockchain and earn some crypto in exchange. In general proof of stake blockchains employ a network of “validators” who contribute, or stake, their own crypto in exchange for a chance of getting to validate new transactions, update the blockchain, and earn a reward. The network selects a winner based on the amount of crypto each validator has in the pool and the length of time they’ve had it there, literally rewarding the most invested participants.

Because proof-of-stake blockchains don’t require miners to spend electricity on duplicative processes, proof of stake allows networks to operate with substantially lower resource consumption.