Crypto 101: Proof of Work vs. Proof of Stake
The two are not the same
Hang around cryptocurrency long enough, and you’re bound to hear or read the words “proof of work” and “proof of stake”. These phrases are big parts of the game when it comes to investing in this technology.
But what do they mean?
First—they are two different ways of approaching the blockchain. Hold that in mind whenever you run across them. One is not necessarily better than they other, but they are altogether different.
Second—each method has its share of fanatics and evangelists.
“Proof of work” is most famously used by Bitcoin. Miners add blocks of transactions to the network (aka the blockchain) by generating hashes on a computer that they hope will match the target hash for the current block. Each ones aims to be the first to generate the correct hash. The one to reach it is then rewarded in cryptocurrency and transaction fees.
“Proof of stake” is also a process for adding transaction blocks to a network. However, a staking system, groups of validators contribute or stake a cryptocurrency in order to maintain the network. These validators will then receive rewards for validating transactions, voting on protocols, and update the blockchain.
Some networks relying on proof of work:
Bitcoin
Ethereum
Litecoin
Some networks relying on proof of stake:
Cardano
Algorand
Tezos
I’ve started hosting a Twitter Space event on Monday nights at 8PM EST. In some ways, its an offshoot from this newsletter, and I invite you to take part. If you’ve never participated in a Twitter Space, its a great way to share ideas, chat about a topic, and debate.
Monday night’s conversation featured several speakers and interesting points of view. You can listen to the recording here by clicking on the link in this tweet:
The Crypto Connection is for entertainment purposes only and is not meant to be financial advice. Please do your own research before investing in any asset class. Sara Celi is not a financial advisor, and holds several cryptocurrencies. To purchase her books on Amazon, please click here.