Transactions on a blockchain need to be verified and recorded to make sure they are valid. There are two major approaches to this: PoW (Proof of Work) and PoS (Proof of Stake). The participants who take part in verifying and recording transactions are referred to by different names depending on the system.
PoW (Proof of Work) and Miners
PoW is a system used by Bitcoin and other blockchains. Participants called "miners" repeatedly perform vast numbers of calculations (hash calculations). The miner that successfully completes the required calculation earns the right to propose a block. This process is called "mining."
Miners use large amounts of electricity and powerful computers to compete in these calculations. In return for successfully mining a block, they receive rewards such as newly issued BTC and transaction fees. The idea that "the cost of performing the calculations provides a basis for security" is a key feature of PoW.
PoS (Proof of Stake) and Validators
PoS is a system used by Ethereum and other blockchains. Participants called "validators" stake a certain amount of cryptocurrency (such as ETH) to participate in proposing blocks and verifying transactions.
Unlike PoW, PoS does not involve a competition based on computational power. Instead, the network selects validators based on factors such as the amount of assets they have staked. If a validator acts dishonestly, part of their staked assets may be taken away through a mechanism called "slashing." The idea that "staked assets provide an economic incentive to act honestly" is a key feature of PoS.
Key Differences Between PoW and PoS
- Participants: PoW uses "miners," while PoS uses "validators"
- Participation: PoW requires computing power and electricity, while PoS requires staking a certain amount of assets
- Energy consumption: PoW requires large amounts of electricity, while PoS uses significantly less
- Security against dishonest behavior: PoW relies on the cost of computation, while PoS uses mechanisms such as slashing (taking away staked assets) to discourage dishonest behavior
As mentioned in our article about gas fees, the "people who verify and record transactions" are essentially these miners (PoW) and validators (PoS). Among the networks supported by Avacus, Ethereum and Polygon use PoS, while BSC uses PoSA (Proof of Staked Authority), a variation of PoS.
Related article: What is a Gas Fee?