Proof-of-Stake vs. Proof-of-Work: Is PoS Better Than PoW?

It has been more than a year since Ethereum’s major upgrade in September 2022, moving from the Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS).

The move went without visible hitches — at least to the majority of observers — and Ethereum continues to operate in a stable fashion, with the ability to handle many more transactions along the way than previously possible (sharding and PoS claim Ethereum’s capacity to handle 100,000 transactions per second or TPS instead of 30 TPS before Merge).

Following the September 2022 event, the reduction in Ether (ETH) issuance and the fact that users and nodes in Ethereum did not appear to be fleeing the network was seen by some as vindication of the perceived benefits of the merger.

In a companion article, we discussed the merits of the PoW consensus mechanism, through the eyes of Bitcoin as its first and foremost representative, against the PoS alternative, of which Ethereum is now the prime example.

In this article, we examine the side of the Ethereum vs. PoS argument to understand why proponents of PoS and the Merge believe it’s a better alternative to PoW.

Before we dive in, a helpful summary of what PoS is: a method of decentralized consensus based not on computing power (or work) but on the amount of crypto held (or staked).

Unlike PoW, where miners compete to solve complex mathematical puzzles to validate transactions, PoS requires validators to hold a certain amount of cryptocurrency in a digital wallet to participate in the validation process.

Think of the stake as collateral in a game. Before each round (or block), lots are drawn to decide who gets the rewards for the new blocks. The bigger your bet, the more tickets you have in the lottery, so the more likely you are to win it.

One of the biggest criticisms of PoW, and of cryptocurrency in general, is its energy use and how it affects our planet. Climate activists are demanding change from what they see as wasted energy and unnecessary damage to our planet due to energy use in crypto.

PoS is considered to be much more energy efficient compared to PoW as it does not require the same level of computing power. Instead of highly specialized computers that PoW miners need, regular devices and even smartphones are often enough to run a validator.

Because validators are chosen to validate transactions based on their share of the network, they don’t have to compete with increasing demands on computing power for mining rewards. This results in significantly lower energy consumption.

PoS in Ethereum would use only a fraction of the energy required for Bitcoin’s PoW.

In terms of speed, transaction confirmations on the PoS network are generally much faster than transactions made using PoW.

In PoS, blocks are determined when validators are chosen to nominate blocks so they don’t have to wait very long, unlike PoW where miners actually have to solve complex puzzles to create new blocks.

With PoW, on the Bitcoin network, a transaction is confirmed every 10 minutes on average. With PoS, on the Ethereum network, a transaction is confirmed every 12 seconds. This is because in Ethereum each block is determined with a slot of 12 seconds units.

PoS also paves the way for newer scalability technologies – the term commonly used in crypto to indicate how large the network can grow in terms of transaction handling capacity. While Layer 2 solutions are popular for Ethereum, enabling off-chain capabilities, it also plans to implement something called sharding.

In this way, the network would split itself into smaller “shards”, each with its own accounts, smart contracts, and transactions, processing and storing transactions as they happen on each shard, rather than the entire network.

This is believed to increase the TPS to as much as 100,000.

For the currently visible and measurable aspects – energy consumption and transaction capacity being the most obvious – PoS seems like a great solution for cryptocurrency.

It doesn’t cost that much and it’s faster.

The bone of contention is really security: which model will better protect the network against attacks?

PoW presents the “too expensive to succeed” argument so well because the only way to beat a network like Bitcoin is to put in more work than the honest actors – a feat too costly to realistically consider.

PoS seems weaker this way, but Ethereum and others believe that detecting and punishing bad actors is actually easier with PoS because it is much easier (because of cost) to reorganize after an attack.

Decentralization, a principle of conservative blockchain, is another factor that proponents of PoW and PoS disagree on.

PoW means an objective view of what is the correct chain in a blockchain, while PoS is subjective – it relies on a group of trusted validators to agree on an action. In this sense, many argue that the group of validators on PoS is highly centralized, as they are, in fact, a cartel.

But the same argument also applies to Bitcoin’s PoW, where large mining pools control huge chunks of the contributing computing power.

Ultimately, for the average consumer, there is very little difference in PoS and PoW on the surface to affect their usage.

Both PoW and PoS are just as susceptible to network attacks if they don’t have enough security – computational power for PoW and economic value for PoS. Both Bitcoin and Ethereum are big enough, with diverse and numerous validators or miners securing their networks.