If you’ve keenly followed Crypto, Bitcoin or conversations around Blockchain; you’ve heard the term Consensus Algorithms, Proof of Work & Proof of Stake
How exactly do they differ?
Lets understand what are Consensus Algorithms first
Consensus Algorithm is a systematic process used to achieve agreement over a single data value over distributed processes.
Dumbing Down Proof of Stake & Proof of Work
Let’s assume;
You are a student in a classroom of 30 students, where students keep joining your class on a periodic basis, and leading your lecture is a professor who throws questions at the students.
Proof of Work
Your Professor throws a question at you, every 10 minutes, and the first student to answer this question gets rewarded.
However, the level of these questions also keeps increasing with each incoming correct answer, and more students are free to join our class.
As your professor asks a question, students race to compute the question first & answer it correctly to get “incentivised”. Naturally, as students keep increasing, the fight to get the answer first becomes more and more intense, and consequently, the professor has to ask tougher questions.
If you notice, the student who submits “proof of his work” in this case, the answer to the problem, where the work done is the computing the answer, describes a toned down version of the Proof of Work Consensus Algorithm.
BTC, or Bitcoin utilises this concept - Proof of Work, where network participants known as nodes, race to compute the answer i.e. validate a transaction happening on the network and in turn, get rewarded. For Bitcoin, it takes 10 minutes to compute and create a new block on the network, and the reward you get is 6.25BTC.
This reward started at 50BTC and gets revised to half roughly every 4 years.
Proof of Stake
To dumb down Proof of Stake, let’s assume you have a notebook of Answers, to questions your professor asked. A friend of yours, just has a page full of such answers while the topper of the class has got a bag full of such notebooks, which are full of answers.
Now your professor still asks you a question, say every 14 seconds. However, instead of rushing to complete the answer first you have to employ a different mechanism; “stake” your notes or offer them as collateral to participate in the quiz. Your professor then selects a student at random, every 12-14 seconds and asks them a question, and hence the student validates his knowledge. Do also note, each student participating in the quiz has staked a minimum amount of notes, and cannot randomly participate.
Ethereum, or ETH utilises Proof of Work, however ETH2.0 is a planned upgrade that in underway and shall be utilising Proof of Stake. Unlike PoS, you are not competing to validate nodes, instead are sharing and pooling resources to mine
These are the differences and explanations, largely dumbed down to reach out to everyone interested in crypto.