Proof of Work vs Proof of Stake: What’s the Difference?

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Adoption and use of blockchain are increasing rapidly due to the fact it is most suitable for the digitization of records and digitalization of systems and processes. On top of this, it is crucial to the development of other emerging technologies. And because blockchain technology has an extremely high electricity consumption, its energy efficiency and sustainability are being questioned.

Blockchain uses up an extraordinary amount of electricity due to the Proof of Work consensus mechanism that is essential to fostering healthy competition among nodes or miners on the network, as well as maintaining and strengthening security. It requires for a node or miner on the network to solve an extremely difficult mathematical algorithm in order to be the first among other nodes to add a newly completed block to the chain.  

Because of this, Proof of Work blockchains need specialized mining equipment that can expend enormous hash power stored in a temperature-controlled facility running 24/7 that all in all uses up a massive amount of electricity. According to an estimate done by the University of Cambridge Centre for Alternative Finance (CCAF) in March 2023, BTC mining consumes between 62 to 209 terawatt hours (TWh) per year. 

The minimum of 62 TWh is similar to Algeria’s annual energy consumption, while the maximum of 209 TWh is about the same as South Africa’s. In this sense, it should not come at all as a shock that much attention has been given to blockchain’s eco-friendliness and sustainability. This is also the main reason why focus has shifted to an alternative to Proof of Work, which is Proof of Stake.

In order to reduce the hash power needed to add a block to the chain, Proof of Stake changed the way transactions and blocks are verified and completed. In this consensus mechanism, nodes become validators, and whoever gets to complete transactions and validate blocks is chosen at random. In order to be part of the roster of validators, one must first stake their coins. 

For instance, for Ethereum (ETH), a minimum of 32 ETH needs to be staked in order to be considered a validator. However, although Proof of Stake actually greatly reduces energy consumption, it actually totally negates the concept of decentralization that is at the core of what a blockchain is. 

In staking coins in order to be able to validate blocks and transactions, it becomes a centralized ledger that gives control of the network to a small group composed of the richest validators. It can be said, then, that the main difference between Proof of Work and Proof of Stake lies both in their energy consumption and decentralization. 

But one crucial difference that many fail to notice is that Proof of Work already has a solution to its high energy consumption, and that is to scale the network. Scaling means increasing block size and throughput, while at the same time reducing transaction fees. 

To give this perspective, compare unscalable BTC Blockchain with scalable BSV Blockchain. While the former is only processing 1MB data blocks and a seven transactions per second (TPS) at a current average fee of $7.02 per transaction, the latter is already completing 4GB blocks and 50,000 to 100,000 TPS at a fee averaging $0.000003 per transaction. 

Hence, the BTC Blockchain’s carbon footprint is computed to be at 66.0893kg CO2 per transaction, while BSV Blockchain is only at a mere 0.0244kg CO2 per transaction. By enabling unbounded scaling, a Proof of Work blockchain can continuously increase its energy efficiency; however, a Proof of Stake blockchain can only create an oligarchical distributed ledger.

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