Is PoS or PoW better?

Moritz Draht: “The method has rightly established itself as the industry standard”

Many roads lead to Rome, but only one to a clean crypto future: Proof of Stake. Of the many ways to secure blockchains, consensus provides the most benefits with the fewest trade-offs.

The method is robust, efficient, inclusive and has therefore rightly established itself as the industry standard. The advantages become clear in comparison with Proof of Work, the procedure that regulates the Bitcoin blockchain and in which the “proof of work” is provided by miners in the form of computing power. Against the background of climate change and the energy crisis, this is not only a negligent but downright dangerous procedure.

The hunger for more and more energy is insatiable, the escalating computing power – hash rate – has become a serious problem over the years. The fact that the blockchain currently consumes as much electricity as Belgium cannot be justified with reference to the use of renewable energies. Bitcoin will probably have to digest the world, but with a view to future projects, Proof of Work should be buried.

Proof of Stake is not just any, but the better alternative. The process balances the three core properties of a blockchain – security, decentralization and scalability – much better. Attacks are theoretically possible, but practically ruled out due to the financial outlay. Proof of Stake allows network participation at a low cost, making it open to more people. Last but not least, PoS networks are also more scalable, so they process a higher throughput on average. One cannot argue against the normative power of the factual.

David Scheider: “On a technical level, PoS is the inferior consensus algorithm”

It has to be the energy. There is no other way to explain the fact that proof-of-stake currencies are just springing up like mushrooms. Cardano, Binance Smart Chain and soon Ethereum. All of them nibbled on the tempting fruit of the number one marketing argument: sustainability! Anyone who champions this term can only win in the age of the climate crisis, right? This is how you can score points, especially compared to the “dirty” competition. Bitcoin? environmental sow! Ethereum? And the heather blooms forever.

This is roughly the calculation of the advertising agencies that hired the fintechs, pardon me, “altcoins” from their budgets financed by Premines.
But greenwashing does not come without a price. Because on a technical level, PoS is the inferior consensus algorithm. There is a tendency towards centralization. Because staking nodes can participate in the lottery to generate the next block without having to spend resources.

Anyone who has scraped together the necessary 32 ETH can sit back and relax and watch their money printing machine at work – at the expense of decentralization. Because: If you are already “rich”, you have a significantly higher chance of mining a block and will automatically become even richer and more powerful. PoS currencies therefore trend towards a centralized plutocracy in the long term.

The control authority is then not the network participants, but large corporations such as exchanges, which can determine the weal and woe of the network with their millions of ETH on the staking node. Bitcoiners have a reputation for not being very willing to negotiate when it comes to choosing their consensus algorithm. In view of the blatant disadvantages of PoS, one has to state: rightly so.

Disclaimer: This article has already appeared in the August issue of BTC-ECHO Magazine. This way to the shop.