Proof of Work vs Proof of Stake: Basic Mining Guide
Proof of Work vs Proof of Stake: Recently you might have heard about the idea to move from an Ethereum consensus based on the Proof of Work (PoW) system to one based on the so-called Proof of Stake.
In this article, I will explain to you the main differences between Proof of Work vs Proof of Stake and I will provide you a definition of mining, or the process new digital currencies are released through the network.
What is the Proof of work?
First of all, let’s start with basic definitions.
Proof of work is a protocol that has the main goal of deterring cyber-attacks such as a distributed denial-of-service attack (DDoS) which has the purpose of exhausting the resources of a computer system by sending multiple fake requests.
The Proof of work concept existed even before bitcoin, but Satoshi Nakamoto applied this technique to his/her – we still don’t know who Nakamoto really is – digital currency revolutionizing the way traditional transactions are set.
In fact, PoW idea was originally published by Cynthia Dwork and Moni Naor back in 1993, but the term “proof of work” was coined by Markus Jakobsson and Ari Juels in a document published in 1999.
But, returning to date, Proof of work is maybe the biggest idea behind the Nakamoto’s Bitcoin white paper – published back in 2008 – because it allows trustless and distributed consensus.
What’s trustless and distributed consensus?
A trustless and distributed consensus system means that if you want to send and/or receive money from someone you don’t need to trust in third-party services.
When you use traditional methods of payment, you need to trust in a third party to set your transaction (e.g. Visa, Mastercard, PayPal, banks). They keep their own private register which stores transactions history and balances of each account.
The common example to better explain this behavior is the following: if Alice sent Bob $100, the trusted third-party service would debit Alice’s account and credit Bob’s one, so they both have to trust this third-party is to going do the right thing.
With bitcoin and a few other digital currencies, everyone has a copy of the ledger (blockchain), so no one has to trust in third parties, because anyone can directly verify the information written.
Proof of work and mining
Going deeper, proof of work is a requirement to define an expensive computer calculation, also called mining, that needs to be performed in order to create a new group of trustless transactions (the so-called block) on a distributed ledger called blockchain.
Mining serves as two purposes:
To verify the legitimacy of a transaction, or avoiding the so-called double-spending;
To create new digital currencies by rewarding miners for performing the previous task
When you want to set a transaction this is what happens behind the scenes: