Proof Of Work is the consensus algorithm that's being used in Bitcoin and many other cryptocurrencies right now and it has caused a lot of problems like excessive power consumption and low network security.
Many other cryptocurrencies have adopted a new consensus algorithm called Proof of stake
In this article I am going to compare Proof of work and Proof of stake.
In Proof of work miners are set to compete with each other to find the solution to the Proof of work(Which is a Cryptographic hash function) and the first node to solve the hash gets to validate the next block and receive the block rewards.
This has caused miners spending a lot money on equipment to get a higher chance to receive the block rewards.
The difficulty of the proof of work keeps increasing with the increase in hash rate of the network. This slows down the creation of new block.
For example: In case of the bitcoin blockchain block are created in a 10 minute time gap and to make sure that the time gap is kept the difficulty of the proof of work increases with the increase in hashing power.
The biggest problem with proof of work is that it rewards people with better equipment and this has led to creation of mining farms and in turn has caused the hashing power of the network to increase causing the proof of work to be more difficult.
The increasing difficulty of the proof of work has made it impossible to mine Bitcoins without investing a ton of money in equipment and many miners are now combining their hashing power and mining in pools and because of this mining has become centralized.
The power consumed by miners has skyrocketed and this has caused a lot of problems in countries like Iceland where the government is spending more money providing electricity to miners than what they spend on powering houses.
Mining pools exist because of proof of work and if the major bitcoin mining pools join together they will control more than 51% of the network and this can be really dangerous as the miners can easily launch a 51% attack and double spend coins.
In the proof of stake system the person who gets to validate the next block is chosen according to their size of stake, For example If Bob has a stake of 100 coins and Alice has a stake of 1000 coins, Then Alice has a 10 times more chance than Bob in this case.
The proof of stake system doesn't require miners to invest in equipment compared to proof of work.
This system might seem centralized but it's not, Proof of stake gives everybody an equal opportunity to participate and earn.
Proof of stake uses very little amount of energy compared to proof of work as miners don't need to invest money in equipment.
There are no block reward in Proof of stake and miners only take the transaction fees as their reward for securing the network and validating blocks.
Doing a 51% attack on a proof of stake network is impractical as the attacker needs to own more than 51% stake in the network and even if a the attacker succeeds he will lose more than what he can gain.
