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Crypto Clarified: Proof of Work (PoW) vs. Proof of Stake (PoS)

October 05, 2022

Watch Time 2:01 MIN

What is the difference between proof of work and proof of stake? Patrick Bush, Senior Analyst, Digital Assets, explains in this episode of Crypto Clarified.

Proof of Work vs. Proof of Stake

I wanted to give everyone a little more context of what Proof of Stake versus Proof of Work means in plain language. A blockchain can be thought of as a history book that contains all past transactions that occur on that blockchain. Each block in a blockchain is a page of the blockchain’s history book that builds off the events of the previous pages to create a full picture of account balances and transfers. In order to make sure the author of each page is honest; two different economic mechanisms can be employed. One is called Proof of Work which forces the author to spend a lot of money on energy and computing power to solve a complicated mathematical puzzle to write a page or block. The other is called Proof of Stake which compels the author to “stake” valuable assets against his or her truthfulness, these assets can be seized if he or she acts dishonestly. In both cases, economic value is spent or risk to guarantee author truthfulness. However, Proof of Stake is dramatically more environmentally friendly because it saves the enormous amount of energy required to solve the complex math problem. On September 15th, the most valuable smart contract blockchain, called Ethereum, swapped out Proof of Work for Proof of Stake. This shift is momentous because it will lead to a 99% reduction in energy usage in order to run the Ethereum blockchain. This makes Ethereum both more environmentally friendly, and ESG compliant.


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