Proof of work vs proof of stake

Both are ways for a network of strangers to agree on who adds the next block. In proof of work, participants spend electricity. In proof of stake, they lock up coins as collateral. Bitcoin uses the first. Ethereum has used the second since September 2022.

Side by side

Proof of work

A miner gathers transactions into a block and tries number after number until the block's hash comes out below a target. The answer is hard to find and easy for everyone else to check.

To rewrite history, an attacker would have to redo that work for the changed block and every block after it, and then overtake the honest chain. On Bitcoin the cost in machines and electricity is the deterrent. Smaller proof-of-work coins are easier targets. Lesson 4 covers this.

Proof of stake

Validators lock up coins. On Ethereum a validator needs at least 32 ETH. In each 12-second slot one validator is chosen at random to propose a block, and others vote on it.

An honest validator earns rewards. One that goes offline loses small amounts. One that provably cheats is slashed: part of its stake is destroyed and it is removed. Lesson 8 covers this.

The trade-offs

• Energy. Proof of work uses a lot of electricity, and that is the main criticism of it. Moving to proof of stake cut Ethereum's energy use by about 99.95%.
• Track record. Proof of stake is younger and more complex.
• Concentration. Mining is done in large facilities by miners who pool their efforts. In proof of stake, large pools and exchanges control a big share of the stake.
• Getting out. Staked coins are not cash. On Ethereum they leave through a queue that lengthens when many exit at once.