Blockchains provide reliable, decentralized transactions with high security and low fees. To maintain these advantages, networks need a way to verify transactions and validate new blocks that get added to the blockchain. This is where a consensus mechanism comes in.
PoW vs Pos are two well-known consensus mechanisms that differ in the ways they verify transactions and validate blocks. PoW is known for its robust security and widespread adoption, while pos is favored for its energy efficiency, scalability, and governance model.
The PoW method for validating blockchains involves a process called mining where miners compete to solve complex cryptographic puzzles and receive newly created coins. This promotes competition, but it also uses a lot of energy. In 2019 mining consumed 0.2% of the world’s energy, according to Arcane Research. Additionally, the advanced hardware needed to mine is expensive and quickly becomes obsolete.
While PoW offers robust security, it has significant scalability challenges and could face 51% attacks. This makes it essential for network developers to analyze their particular security requirements and determine which consensus process best satisfies them.
While some claim that the formal association with energy consumption turns PoW currencies into commodity-money and staking into equity-money, these claims miss the point of why we need crypto to begin with. Cryptocurrencies need to be designed with the future digital world in mind; they must transcend merely being physical instantiations of the real world. As such, they must be governed by rules and structures that reflect how the world already governs itself.