Proof of Work vs Proof of Stake & the Ethereum 2.0 release

Episode 27 - Proof of Work vs Proof of Stake & the Ethereum 2.0 release
I need to start off by saying this is not financial advice so if you are looking for that this show isn’t for you. The content of this podcast episode is for informational purposes only. The opinions expressed here are not meant to be taken as financial, investment, or any other advice.

In order for cryptocurrency to come to the creation and validation of cryptocurrency onto the blockchain they have to follow one of two ways. Either proof of work or proof of stake. These are two different consensus mechanisms for cryptocurrency that help validate cryptocurrency transactions. These consensus mechanisms help blockchains synchronize data, remain secure, verify and add new transactions to the blockchain, and create new tokens. Consensus mechanisms allow each computer attached to the network to agree on legitimate transactions to avoid middlemen.

Proof of work, first pioneered by Bitcoin, uses mining to achieve those goals and the first functioning proof-of-stake cryptocurrency was Peercoin, introduced in 2012 which uses staking to achieve its goals. The main upside of proof of work is that it is trusted, and has a long track record while the main upside of proof of stake is that it requires less energy, and is scalable. While both methods validate incoming transactions and add them to a blockchain which is the ultimate endgame they still both differ in how they get there.

The easiest way to think about them both is Proof of work is computer power meaning the more robust the computer the more that complex equations can be solved and more mining can be done earning them rewards. And proof of stake is currency power, which means the more coins a validator is holding the more chance they will be allowed to validate transactions which rewards them with more coins. The other thing is Proof of Work creates coins, like bitcoin, while Proof of Stake does not, because the coins have been created at the start of the project which means they essentially mint their tokens before an ICO or initial coin offering. So let’s break this down a bit more.