What is the difference between proof of work and proof of stake?
Proof of work and proof of stake are the two primary consensus mechanisms cryptocurrencies use to verify new blockchain transactions.
Proof of work, first pioneered by Bitcoin, uses mining to achieve those goals. The reason it's called “proof of work” is because the network requires a huge amount of processing power. Proof-of-work blockchains are secured and verified by virtual miners racing to be the first to solve a math puzzle. The winner gets to update the blockchain with the latest verified transactions and is rewarded by the network with a predetermined amount of crypto.
Proof of stake which is employed by Cardano, the ETH blockchain, and others uses staking to achieve the same outcomes.
While the Bitcoin blockchain mostly just has to process incoming and outgoing Bitcoin transactions, much like a robust digital ledger, Ethereum's blockchain also has to process a vast array of DeFi transactions, stablecoin smart contracts, NFT minting and sales, and whatever innovations developers come up with in the future. Their solution has been to build an entirely new ETH blockchain which began rolling out in December 2020 and was completed in September 2022.
The upgraded version of Ethereum will employ a faster and less resource-intensive consensus mechanism called proof of stake. Cryptocurrencies like Cardano use proof-of-stake consensus mechanisms with the goal being to maximise speed and efficiency while lowering fees.
In a proof of stake system, staking serves a similar function to proof of work's mining, in that it's the process by which a network participant gets selected to add the latest batch of transactions to the blockchain and earn some crypto in exchange.
The Xapo Bank app offers Bitcoin, Ethereum, Cardano and Polygon to its members who can buy, hold and sell the respective cryptocurrencies.
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