Proof of Work (PoW) and Proof of Stake (PoS) Explained

Proof of Work (PoW) and Proof of Stake (PoS) Explained

 In this article, you will learn about two main concepts in the blockchain world. Proof of work and proof of stake.

What is proof of work in Bitcoin World?

In the Bitcoin world, the transaction that happens is not dependent on any third-party operator. For example, when you make a transaction using your original currency through visa or master card, they act as a third-party who transfers your amount to another account. But in case of Bitcoin world, the transactions are managed by various blocks which form the blockchain technology. So to make the block function properly and record every transaction, bitcoin miners need to solve some complicated set of puzzles or algorithms and create a block. To solve this mathematical puzzle, it requires a massive amount of computing power. When any miner solves the puzzle, he/she creates a block and then, the miner will send the new block to the network for other miners to verify it.

The question must be arising in your mind as for how they are awarded for creating those blocks? The answer is these algorithms are solved to make your transactions in this virtual world secure. Since Bitcoin is a decentralized currency, it is not controlled or governed by any central body. So, how to track any transaction happening with this currency? This is precisely what miners do. They solve the puzzles, create various blocks and maintain the BlockChain which guards every transaction and keeps the system secure. This procedure is called as proof of work or POW. You do some work for which you are paid.

What is proof of stake in Ethereum and related protocol?

As Ethereum is widely known as another decentralized cryptocurrency, this virtual currency network used to operate using the POW but now it doesn’t use the Proof of Work system to validate any transaction happening on their network. This system first determines how much currency a person holds. Based on that a person is assigned to mine only the percent of the cryptocurrency he/she holds. For example, if you own 1% of the cryptocurrency that is available then you are entitled to mine 1% of the blocks. This method is more secure as compared to POW system as it is more secure from the 51% attack by fraudulent miners.

The POW system uses normal electricity for its transaction. This means when a miner uses its power to solve block puzzles and solves it, he/she validates a transaction. This, in turn, gives him the award regarding Bitcoins. But in PoS system it doesn’t depend on the electric power to generate cryptocurrency for you. Only if you hold a certain amount of cryptocurrency you are allowed to mine and that too limited. So basically, it is least dependant on the electric power supply. 

Proof of Work (POW) Vs Proof of Stake (POS) 

So comparing both the systems lets discuss their advantages and disadvantages.

Advantages of Proof of Work

  • The POW give rise to a series of miners who work for the stability of blockchain and make the network and transaction very secure.
  • You don’t need to have some asset beforehand to start your mining

Disadvantage of Proof of Work

  • The system of POW makes it easier for miners to make their 51% attack. This means that a miner or a group takes over 51% or more than that of the hash rate (computational power). This gives them the power to manipulate and create fake blocks redirecting some transactions towards their account. They can stop transactions, reverse transactions or even create disturbances in the whole system, but they certainly can’t create a new Bitcoin. Total 21 million Bitcoins can be mined and owning 51% of the computational power doesn’t make you the creator.
  • Although this kind of attack is considered as hypothetical but should not be ignored. If you take present scenario into account, the mining of Bitcoins are more time consuming, getting more difficult and consuming a lot of electricity and the amount they are getting for the mining are too less. This makes it less profitable. Hence, lots of miners are opting out of mining and solving the codes which is slowly making the system less secure and more susceptible to attackers.

Advantages of Proof of Stake

  • The basic advantage of proof of stake is that it is more secure as compared to POW system. Both the POW and PoS uses trustless and distributed consensus. This means, if you wish to go ahead with a transaction, then you won’t need the help of third-party system to monitor and leverage your transaction. Distributed means the whole community who believe in the existence of the cryptocurrency and oversee the transaction and what’s more? They validate each transaction and every person holds a copy of each transaction that is going on.
  • The miners are determined concerning the amount of currency they hold.
  • They get the transaction fees as the result of their mining
  • More secure against 51% attack

Disadvantage of Proof of Stake

  • The PoS doesn’t have any solid disadvantage except that you need to hold some asset before becoming a miner or a forger. This removes many people who wish to start mining from scratch.
  • It doesn’t reward you for block creation. You only receive the transaction fees but no separate reward for making the system secure.
Proof of Work Proof of Stake
Uses computational power to solve algorithm Doesn’t require computational power to solve algorithm
Easier for attackers to conduct 51% attack More secure as the attacker need to buy 51% of the total currency before they can attack
Rewards are given for solving each puzzle to valid a transaction (the one who solves it first gets the reward) The forgers can keep the transaction fees for validating each transaction
Anyone with necessary hardware can start mining with the Proof of Work consensus A team determines whether you qualify as a forger or not based on your current asset


So basically, none of the systems is 100% free from virtual attacks. But since most of the cryptocurrencies use blockchain technology, it is important for the community who believe in them to work together to make the system and the transactions secure on this platform. No matter how these protocols function, the final objective of every cryptocurrency is same, i.e., to create a secure dimension in which a singular decentralized currency will drive all the transactions.

What Is Cryptocurrency/Bitcoin Mining? How Does It Work?

What Is Cryptocurrency/Bitcoin Mining?

Cryptocurrencies have become a wave since the past few years, and many have successfully ridden it, making millions in the process. ‘Disruptors’ as they are known have started companies in the blockchain that offer financial services and monetary exchange in return for the hottest cryptocurrencies available today. An independent system that runs parallel to the mainstream financial world offers a promise of a bright future for those who will invest their trust in this otherwise unconventional electro-monetary market.

However, without being backed by gold or any other standard with intrinsic value, the cryptocurrency market sometimes feels like a castle builds on a heap of sand.

What Is Cryptocurrency/Bitcoin Mining?

The cryptocurrency network is completely decentralized which renders it no regulating authority to formulate its rule or conduct some basic checks and balances to keep investor’s trust in the system. This is actually a positive side of the cryptocurrency network as it allows more and more people to participate and contribute to the market.

And if at all you are still wondering about ‘where does it get its intrinsic value from?’ it is the technology behind those cryptocurrencies that renders them a monetary significance.

This is where cryptocurrency mining comes into the picture. Or to say Bitcoin mining since both the terms have become synonymous with each other.

Solve The Math, Generate Your Cryptocoins

Now here comes the core of the ‘intrinsic value’ factor of those cryptocurrencies. Most of the cryptocurrencies work on the double SHA 256 algorithm, where a crypto miner has to solve a mathematical encoding algorithm that is used for encrypting files in a network. Hash function in computer world means a program that converts an input to randomly generated characters.

For example,

Message: Steve sent 0.1 bitcoin to Michael
Hash Value: 46550fef sdf345 dfgdfg345 ddfgdfgd 9513291c 


To put in laymen’s terms, cryptocurrency mining is a process of solving a complex mathematical problem using computing resources to create a block in the blockchain network. The person who joins the network with his computing resources is called a miner. For bitcoin or any cryptocurrency to operate we need a network of miners to help the transactions going and new coins will be generated in this process. Since the miner is providing computing resources, for every successful block creation, he will be rewarded with new coins (For bitcoin it is ~12.5 bitcoins). More computational resources a miner has, the faster he will solve the mathematical problem.

The process begins with mining a block. Here, the miners collect new transaction into a solving block. Then the miner hashes the block to get a 256-bit hash value. For bitcoin, the hash value should start with several zeros (According to the bitcoin protocol).  If it gets solved, the hash value becomes the identifier of the block. When the hash is not successful, the block is modified and re-tried.

So on what basis the miners will try to find the hash? it’s complete guessing. Yes! it is guessing. That’s the reason, miners use a lot of computers to guess this hash value that starts with several zeros.

A rough estimate states that one block is created every 10 minutes. However, the number of Bitcoins (or any other cryptocurrency for that matter.) contained inside a block keeps changing from time to time. Once a block of cryptocoins is mined, it is sent to the Blockchain network. Other miners in the network will verify the hash value of the block and its transactions. This is called Proof Of Work (POW). Once verified, the block will be added to the blockchain network.

So that says it all. It is solving a mathematical encryption riddle by trying combinations of hash functions for the block.

An example bitcoin transaction diagram created by Patricia is shown below.

what is cryptocurrency mining

Crypto-Mining Resources: Tools Used For Mining Cryptocurrencies


As obvious it must be, computers are the most basic tool that is required for cryptocurrency mining. You don’t need to have a complex and powerful computing machine for doing all the mining job, although one that is powerful will do better. There are companies that are dedicated towards mining Bitcoins or other crypto coins. An internet connection is another obvious requirement in the list.


Or Graphic Processing Units are just powerful CPUs, the microprocessors that run computers. GPUs are used for gaming which makes them powerful and stands apart from CPUs. The specialized nature and power delivered by GPUs render them useful for Bitcoin mining as they have a high data processing power as compared to CPUs.

However, people eventually realized the GPUs were not good enough too and burnt out faster. This led to GPUs being substituted with…


If you have an ASIC, you don’t need to use a GPU. Application Specific Integrated Circuits are needed for processing complex data and making the difficult calculations pertaining to the hash functions. As the name explains it all, ASICs are specifically made for crypto mining operations. AntMiner is one such ASIC box that many quality Bitminers prefer.

Bitcoin/Crypto Mining Software:

While ASIC is the hardware that you need, you are still going to need a software is required for mining crypto coins. The software provides you an interface to view the mining process and helps you stay in the loop of progress.

Cooling Fans and Gels:

Even though your ASIC is running hard and high, you are still going to need cooling devices, or else your whole system might come crashing due to the heat. The amount of heat generated by those processing devices while they solve these hash functions is tremendous. You won’t forget the heat if you ever hold your hand closer to one such computing device.

Cooling gels applied on the fans can be an add-on advantage to sooth the heat generated by all the data processing.

All that being said, crypto mining can also be done on the cloud. Also known as Cloud Mining, it is when you mine crypto coins without having to invest in all the hardware and software on your own machine and in your own room.

You can also join the crypto mining pool which works like a carpool. You can pool down all your resources in a crypto mining endeavors alongside others who are willing to do the same and share the bounty.

Besides, there are also applications online where you can do a cost-benefit analysis of all your crypto investments in hardware and software and measure them against the gains you have in your cryptocurrency earnings.

What is a BitCoin Wallet and Types Of Bitcoin Wallet

what is a bitcoin wallet

Bitcoin has been grabbing the headlines of all financial news media for the past few weeks. It is largely thanks to the fact that the value of Bitcoin has grown nearly ten times since the start of the year. And the most amazing part about this is, it is only predicted to grow further.

So, if you are looking to invest in Bitcoins, this is the perfect moment to do so. Bitcoins have a high value these days, which is why it is essential to save them in a safe and secure place. And that is where Bitcoin wallets come in.

What is a Bitcoin Wallet?

Bitcoin wallets are like banks for Bitcoins, but with a difference. Unlike regular money, Bitcoins cannot be stored anywhere. So, what exactly does a Bitcoin wallet store? Every Bitcoin has an address, and all these addresses have keys to access them. Without these keys, you lose access to your Bitcoins, hence storing them in a secure location is of high priority. A Bitcoin wallet stores these keys in a safe and a secure place.

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Types Of BitCoin Wallets

There are many different types of Bitcoin wallets, here are some of them :

Desktop Wallet:

A desktop wallet is in the form of software that can be installed on your desktop computer or laptop. It can only be accessed from the computer it was installed on, thus making similar to cold storage. Storing your Bitcoins in a desktop that is not connected to the internet prevents any threat of hacks.

Online wallets:

These wallets are online services that store your keys on their encrypted servers. Only you can access them with the help of a password or passphrase. Online wallets can be accessed from anywhere at anytime.

Hardware wallets:

Hardware wallets are small devices that are not connected to the internet or any other network, These devices are portable and are used only to store your Bitcoins. Trezor is a famous example of this kind of wallet.

Mobile wallets:

Wallets that come in the form of an application that can be installed on your phone is called a mobile wallet. These wallets can be both connected to the internet or not connected to it.

Physical wallets:

Physical wallets are nothing but address keys printed on a piece of paper. This paper can then be stored in a secure location to prevent loss of theft. Websites offer services through which users can print the address keys on paper.

How Does Blockchain Technology Work? Is It Really The Future?

Blockchain Technology

The last few years have seen Bitcoin and blockchain technology taking the world by storm, when an obscure, rootless technology popping out of nowhere began making news, being touted as the ultimate emancipator of humanity from paper money and a harbinger of the coming Type I civilization stage.

Hold right there!! For all the cryptocurrencies that we know, they have rightfully evoked the inner skeptic within many of us, mainly because of two reasons. First, that the digital currencies are not backed by gold or any physical commodity or a legal precedent like stocks/shares etc.; and second, that the complex process to generate cryptocurrencies seems volatile and does not fit the current understanding of ‘creating value’ to back up a natural currency.

Blockchain Technology Explained

Let us take a look at how cryptocurrencies are generated through Blockchain technology.

Blockchain, the Mother of Cryptocurrencies:

Let us begin with the concept of a ledger. You must have heard of a ledger, a book where a bank or an accountancy department maintains its transaction data. For those who haven’t, it is a record-keeping method, where the chief accountant maintains important transactions recorded from time to time.

Similarly, there is a global ledger for Bitcoins, which maintains the creation as well the transaction of Bitcoins world over. This ledger is, of course, digital and surprisingly, it is not present in one single storage place like a unified server, but rather spread out all the world across several machines.

This mechanism has one chief advantage and one disadvantage too. The former being that this system does not risk anything like a server crash that will wipe out all the ledger data, and the later one being that if things go wrong, there is no central authority to work its way around and take heed of your problems.

So how does the ledger work? Let’s suppose that Richard has a Bitcoin record of 10 Bitcoins and Jean has that of 15. If Jean wires or transfers two of his Bitcoins to Richard, Jean will broadcast this transfer and create a record in the ledger that will update this transaction. Thus by whatever digital identity Jean and Richard are known as Bitcoin holders in the ledger, they will be shown with values 13 and 12 respectively.

How Do Bitcoin Transactions Take Place?

One needs to have a Bitcoin wallet, which is an account made for storing your Bitcoin balance. A Bitcoin wallet has two safety keys, one public key, and one private key. Each public key has a corresponding private key and vice-versa.

Therefore, a Bitcoin transaction authentication takes place only by the verification of the corresponding public and private keys. However, there is also another factor in play here, known as the message encryption.

Before Jean wants to buy anything with his Bitcoins, he will encrypt a message with his private key and the Blockchain computers will take a note of it. Later, he will broadcast this message, where the computers in the node will verify that the message was broadcast with the given private key. This process authenticates that the sender is the real buyer or whatever transaction he is doing.

Why Do They Call It ‘The Blockchain’?

As said before, a Blockchain ledger records all Bitcoin transactions that take place all over the world. However, a ledger is maintained in every node, which is a computer in the Blockchain network.

So how does one confirm that a transaction has taken place after another? A time stamp does not work in this case since it can be easily exploited to create false transactions and commit frauds?

This is where blocks come into action. A block is a page that contains a list of transactions taken place at a certain point of time, with each block containing a block number and a link to the previous block. This mechanism helps to authenticate transactions and ensures that nodes agree with each other on transactions since those blocks have one unified information about Bitcoin transactions taking place at each point in time.

These blocks are linked to one another in series which forms a chain of these blocks, hence a Blockchain.

What Does The Future Say?

Since blockchain technology is taking off pretty fast, let us hope that cryptocurrency proves itself to be the promised future currency. Most likely, Bitcoin will survive side by side to traditional fiat currencies, maybe until the next century when mankind upgrades to a Type I Civilization.

Also, you can have a look at pwc’s blockchain infographic.

blockchain technology explained