15 Feb 2025

light mode

PoW vs PoS: what are the key differences between the algorithms

PoW vs PoS: what are the key differences between the algorithms

Every cryptocurrency operates on a blockchain. Each blockchain uses a specific consensus algorithm. Each algorithm establishes fair rules of the game for all participants.

On this page

Blockchains of many famous coins function using Proof-of-Work and Proof-of-Stake algorithms.

The PoW group includes cryptocurrencies such as Bitcoin, Dogecoin, Litecoin, Ethereum Classic, Zcash, all Bitcoin forks and others. PoS coins with the largest market capitalization include: Ethereum, Cardano, Solana, and others. Ethereum recently switched from PoW to PoS, so this coin has had time to test both algorithms.

As you know, nodes are necessary for the formation of new blocks in chains. They perform the role of transaction validators, for which they receive a reward from the network.

In Proof-of-Work, nodes function on the basis of mining equipment that performs complex hash calculations. The more powerful the hardware (ASIC, FPGA, GPU, CPU), the higher the chance of creating a block and receiving a reward from the network.

In Proof-of-Stake, nodes operate on the basis of a pool of coins that are blocked there. The more coins there are in the pool, the higher the chances are for the owner of the node to create another block and receive his reward for it. PoS is considered more environmentally friendly because it does not require the presence of mining equipment and significant electricity costs to support its uninterrupted operation.

Tools for countering “51% attacks”

In addition to establishing a level playing field for all participants in coin issuance, consensus algorithms also serve an important security function. They must counter “51% attacks” and support the principles of decentralization.

In addition to keeping a copy of the blockchain by all full nodes, in Proof-of-Work additional factors that counteract attempts to monopolize the network are halving and the constant increase in the mining equipment cost.

As you know, halving in PoW coins was established as a mechanism to counteract inflation (if such a word could be used in relation to digital assets) and an increase in the value of cryptocurrencies during the entire emission cycle. Approximately once every four years, as a certain number of blocks is reached, the miner's reward is halved. But it so happened that halving began to contribute to the strengthening of decentralization and resistance to “51% attacks”. All because owners of mining equipment are forced to upgrade it every four years in order not to lose the profitability of this business. So, with each halving, mining equipment becomes more powerful and valuable.  In theory, to resort to a “51% attack” on the Bitcoin network, an attacker must have the equipment, the cost of which would be in the billions of US dollars. This is a significant stopping factor even for the richest people on the planet, who are used to always diversifying risks and never putting “all their eggs in one basket.”

In Proof-of-Stake, in addition to storing a copy of the blockchain by all full staking nodes, there are also several additional protection mechanisms against the “51% attack”.

The main one is the factor of market price formation in accordance with supply and demand. To organize a “51% attack”, a potential attacker needs to concentrate more than 50% of all coins in his hands. Buying that many coins through centralized (CEX) exchanges and public trading platforms would cause their price to skyrocket and make such an attempt too costly. In addition, even at the first stage of the implementation of such a plan, the developers, thanks to the constant monitoring of the market, track such attempts and neutralize these attacks. The punishment can be different – from the removal of the attacker's node from the network with the loss of the right to participate in the consensus to the destruction of the validator's pledge.

The option with decentralized (DEX) exchanges or OTC-deals (over the counter – over-the-counter market) is also unlikely, because these markets have a limited supply and inflated lot prices. It will also be economically unprofitable for the potential organizer of the “51% attack”. 

Which of the algorithms is more contributing to decentralization

Opinions differ here. Opponents from both camps believe that it is their algorithm that promotes decentralization the most. But there are objective factors that indicate this.

PoW constantly incentivizes miners to find geographic locations with the cheapest sources of electricity. Considering that for a large amount of equipment, the cost of electricity is a significant cost item, miners prefer jurisdictions loyal to mining with the lowest electricity tariffs. Because cheap electricity is available in different regions of the world, mining farms and the legal entities that operate them also have a wide geography. In addition to geographic decentralization, it also contributes to the decentralization of PoW-crypto-assets in general around the world.

PoS cryptocurrencies are potentially more vulnerable to centralization than PoW, as control over the network is determined by control over capital (the wealthy will become even wealthier). This approach has potentially more risks and temptations towards centralization than alternative schemes using industrial equipment, labor or cheap energy sources. 

The content on The Coinomist is for informational purposes only and should not be interpreted as financial advice. While we strive to provide accurate and up-to-date information, we do not guarantee the accuracy, completeness, or reliability of any content. Neither we accept liability for any errors or omissions in the information provided or for any financial losses incurred as a result of relying on this information. Actions based on this content are at your own risk. Always do your own research and consult a professional. See our Terms, Privacy Policy, and Disclaimers for more details.

Articles by this author
AI Is Making Crypto Scams Smarter—Insights from Chainalysis 2024

AI Is Making Crypto Scams Smarter—Insights from Chainalysis 2024

The 2024 Chainalysis report confirms that AI-driven fraud is on the rise, with crypto scammers cashing in at least $9.9 billion through advanced deception tactics.

The Coinomist
North Korean Hackers Infiltrate GitHub & NPM to Steal Crypto

North Korean Hackers Infiltrate GitHub & NPM to Steal Crypto

Lazarus Group, a North Korean hacking unit responsible for numerous cyber attacks, has launched a new campaign targeting software developers and crypto wallets.

Anahit Avetisyan
Solana Outpaces Rivals as App Revenues Surge in Crypto Revival

Solana Outpaces Rivals as App Revenues Surge in Crypto Revival

Messari reports that Solana-based apps saw an unbelievable 213% revenue spike, making Solana the top blockchain for app-generated earnings.

Anton Kryshtal
HashFlare Founders Admit to $575M Crypto Fraud Scheme

HashFlare Founders Admit to $575M Crypto Fraud Scheme

A long-anticipated court hearing in the U.S. has concluded with HashFlare co-founders Sergei Potapenko and Ivan Turogin admitting to charges of wire fraud.

The Coinomist
Weekly Analysis of BTC, ETH, and the Stock Market (Feb 10, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Feb 10, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, and the current cryptocurrency market dynamics.

Artem Khomenko
Weekly Analysis of BTC, ETH, and the Stock Market (Feb 3, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Feb 3, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, and the current cryptocurrency market dynamics.

Artem Khomenko
Weekly Analysis of BTC, ETH, and the Stock Market (Jan 27, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Jan 27, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, and the current cryptocurrency market dynamics.

Artem Khomenko
How to Bump a Transaction in the Bitcoin Network

How to Bump a Transaction in the Bitcoin Network

Sometimes, Bitcoin transactions can get “stuck,” especially if a low fee was set. In such cases, you might wonder: Why is my Bitcoin transaction stuck?

bitOn
Inside Cryptocurrency Farms: How Digital Coins Are Mined

Inside Cryptocurrency Farms: How Digital Coins Are Mined

Cryptocurrency farms and mining have evolved significantly since Bitcoin launched in 2009. To understand their growth, it helps to look at the broader history of resource extraction.

The Coinomist
From Bulls to Ballers — Why Celebrities Are Flocking to Crypto

From Bulls to Ballers — Why Celebrities Are Flocking to Crypto

Trump’s meme coin isn’t an outlier—it’s part of a broader trend. Back in 2021, celebrities were minting NFTs, and by 2024, they had moved on to personal token launches. The connection between fame and crypto has been growing for years, even if many failed to see it.

Vlad Vovk
Which Macroeconomic Factors Make Crypto Rise or Fall? 

Which Macroeconomic Factors Make Crypto Rise or Fall? 

It happens when you check the market and crypto prices are up or down for no obvious reason. Then you do some research and find out that there are actually reasons outside the crypto space.

Anahit Avetisyan
How Blockchain Helps Combat Disinformation

How Blockchain Helps Combat Disinformation

Fake news has become a global issue, shaping public opinion, fueling social tensions, and even influencing political decisions. With the rise of social media, the spread of misinformation has accelerated, making it increasingly difficult to regulate. However, blockchain technology offers a promising solution in the fight against fake news.

Daryna Nesterenko
Trading Psychology: How to Avoid Falling Victim to Your Own Biases

Trading Psychology: How to Avoid Falling Victim to Your Own Biases

The most successful traders aren’t always the smartest. More often, those who excel are the ones who understand psychological traps, manage their emotions, and maintain rationality under pressure.

Vlad Vovk
SBF’s Prosecutor Quits – What It Means for Crypto Crime

SBF’s Prosecutor Quits – What It Means for Crypto Crime

Danielle Sassoon, Acting U.S. Attorney for the Southern District of New York, has resigned, making headlines this week. And you’ve definitely heard of one of her biggest “client” names.

Anahit Avetisyan
Trump’s Crypto Summits: Pragmatic Move or Regulatory Mess?

Trump’s Crypto Summits: Pragmatic Move or Regulatory Mess?

What’s the best way to figure out how the crypto industry needs to be regulated in the U.S.? Donald Trump is considering different options.

Anahit Avetisyan
MORE
«Mass Adoption Isn’t About Tech – It’s About Perception». Bitmedia Founder Matvii Diadkov – About RWA, Web3, And Marketing

«Mass Adoption Isn’t About Tech – It’s About Perception». Bitmedia Founder Matvii Diadkov – About RWA, Web3, And Marketing

Matvii Diadkov, founder of Bitmedia, shared with us in an exclusive interview his expert insights on Web3 adoption, impact of GameFi and community-centering tendencies in the market.

The Coinomist
“Satoshi is CIA”: Swedish crypto bro opens up about his Bitcoin journey

“Satoshi is CIA”: Swedish crypto bro opens up about his Bitcoin journey

The first crypto craze took place almost a decade ago. Overnight, many people found out about Bitcoin and its underlying technology, blockchain.

Lesia Dubenko
MORE