Downsides of Proof-of-Work and Proof-of-Stake, explained

1. What are the main types of nodes in existence?

Proof-of-Work and Proof-of-Stake are arguably the best-known consensus mechanisms — but new ones are continually emerging.

PoW blockchains have long dominated the cryptocurrency landscape, with both Bitcoin and Ethereum using this model. This means miners are responsible for securing the network and validating transactions — and they get rewarded with new coins as a result.

However, a common criticism surrounding Proof-of-Work relates to how much energy it uses, and the impact such blockchains have on the environment. Miners need to use vast amounts of computing power to solve arbitrary mathematical equations. More advanced hardware has been required as the industry matured, with electricity usage surging too.

This has led Proof-of-Stake to be regarded as a more eco-friendly approach. Miners are replaced by validators — nodes that have a financial stake in the smooth running of the network. While proponents claim this can use 99{9b92c7deea08dd767c10385b960ebfe33f4e66123aeb447c828ecabcbb419100} less energy than PoW, some fear PoS can lead to greater levels of centralization and censorship. Ethereum is currently in the process of moving to this consensus mechanism during The Merge — and it’ll be interesting to see how this high-stakes experiment pans out.

A new approach is known as Published Proof-of-Contribution, otherwise known as PPoC for short. Here, every single participant has a role to play in ensuring the ecosystem is decentralized, democratic and well-governed.

2. How efficient are these consensus mechanisms?

There are a few ways of measuring this: Gas fees, block confirmation times, and scalability.

Each of these three factors have a crucial role to play in a blockchain’s success. Proof-of-Work blockchains often see gas fees spike whenever there’s a bull market, meaning that it costs more for a transaction to be processed in a timely fashion.

Conventionally, blocks in PoW can take up to 10 minutes to be finalized — but this can vary depending on mining difficulty. According to Ethereum, PoS offers a greater degree of certainty and a set tempo, with a validator being randomly chosen to create a new block every 12 seconds.

With both of these blockchains, there can be fears that those with the most hardware to dedicate to mining — or the highest amount of crypto staked — can end up dominating the block rewards. PPoC mechanisms help address this by mining blocks every two seconds, with every node being rewarded evenly. In theory, this means every participant is steadily incentivized for the contribution they’re making to the network.