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Seeking Alpha 2022-10-06 09:30:00

Proof Of Work Vs. Proof Of Stake: Why Their Differences Matter

SummaryDistributed ledger networks like Bitcoin, Ethereum, and Cardano are open for anyone to join and have no overarching authoritative figure.PoS chains derive their security from within the network, meaning the staked tokens used to secure the network are registered to the network and are visible to all participants.It is important to note that the PoW’s bad-for-the-environment stigma might not be justified.The consensus method is arguably the most crucial building block of distributed ledger networks because it defines how individuals reach agreement in a global and permissionless system. A key component of consensus is the Sybil resistance mechanism, as it protects the network against attacks. Proof of Work (PoW) and Proof of Stake (PoS) are the biggest Sybil resistance mechanisms.While they serve the same purpose, PoW and PoS have significant differences in design that dictate a network's throughput, security characteristics, level of decentralization and energy consumption. In this report, we break down why a PoW network might be more challenging to attack than a PoS network, but also why PoS offers higher scalability, adequate security, and potentially a more compelling economic model.Key Takeaways Coordination of distributed ledger network participants and ensuring confidence in network security falls to consensus mechanisms, where majority rules. PoW and PoS are not consensus mechanisms, but they are important compon...

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