You may have heard two similar terms in the cryptocurrency world: proof-of-work and proof-of-stake. These terms are used to distinguish whether a cryptocurrency is mined or not. However, sometimes the distinction between these terms can be confusing. Let’s take a look at what the difference between these terms is.
Let’s start with the simplest part – the proof-of-work (PoW) algorithm. This algorithm requires people to use computer hardware to process transactions. This hardware, also known as mining, uses its computing power to solve mathematical problems and is rewarded with a cryptocurrency. Bitcoin, and now Ethereum, still run on this algorithm. It was the first generation of blockchain, used in Bitcoin as the first cryptocurrency to use it.
The goal of proof-of-stake (PoS) is to achieve the same result as PoW – secure verification of transactions on the blockchain, but in this case, verifiers do so by providing a certain number of cryptocurrency tokens to a so-called staker, where they lock up their cryptocurrency and get a chance to verify the transaction, thereby receiving the associated reward and ensuring the security of the network. PoS is the next generation of how blockchain can work. It has several advantages over proof-of-work, such as you don’t need a super-powerful computer to verify transactions.
