Proof-of-Stake (vs proof-of-work), Simply Explained, 21 March 2018
Proof of WorkProof of Stake
Distributed consensus among untrusted and unidentifiable nodesDistributed consensus among untrusted and identifiable nodes
Incentives are reworded within the system for work done outside of the systemIncentives are rewarded within the system for escrow inside the system
Relatively high cost of entry, but high returnsLow cost of entry, but low returns
Empirically provenExperimental

Proof of Work provides a game-theoretical distributed consensus algorithm:

  • Proof of Work incentivizes mining nodes on the network to reach for the thermodynamic limit of computational cycles. This incentivizes decentralization because heat from mining nodes dissipates better in two separate places rather than one centralized location. Note, this decentralization is solely physical and a network distribution.
  • Proof of Work has empirically proven that game-theory can be weaved into a protocol because it successfully applies incentives at every possible action within the network.
  • Proof of Work only works because it is optimization-free and approximation-free.
    • Optimization-free means there is no possible way to circumvent the hashing of the mining protocol necessary to secure a block.
    • Approximation-free means there is no possible way to almost have a block. The process is binary; there are blocks and not blocks.

Proof of Stake provides an experimental internally game-theoretical consensus algorithm:

  • It relies on nodes already having cryptocurrency to stake. It rewards nodes with the most money staked, and not the most computational power.
  • It requires that each validating node be identifiable. This is because the staked coins must be held accountable for any malicious acts. Proof of Work does not require identification.
  • In Proof of Stake,you are competing with a much larger group of nodes. There is no transactional friction involved in staking coins, unlike in Proof of Work, which requires buying mining hardware, hooking up internet, providing cooling systems, etc. (Linux Foundation Blockchain: Understanding Its Uses and Implications)

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