Both Proof of Work (PoW) and Proof of Stake (PoS) works on a trustless and distributed consensus system, meaning if you want to send and/or receive money (or any digital assets) from someone you don’t need to trust in third-party services (e.g. Visa, Mastercard, PayPal, banks). With Bitcoin and altcoins, everyone has a copy of the ledger (blockchain), so no one has to trust in third parties, because anyone can directly verify the information written.
Now coming to how these two (PoW and PoS) are different from one another?
Proof of Work (PoW) as the name suggests is the approval mechanism for the work that has happened and demonstrating it is right. Bitcoin and many Altcoins (coins other than Bitcoin) follow this consensus mechanism to make sure the authenticity of the chain is optimal.
Let me explain this in the simplest way possible.
Assume you are in your classroom with other students (miners). Teacher asks a question (Problem). The rule here is whoever comes with a correct answer with complete proof of the answer (Steps) will get a reward (Proof of Work). Now, everyone starts competing for the right answer. Now, the point of consideration here is the Brain power (Computing Power used by the hardware) used in solving a problem. Tougher the problem, more the brain power will be used to find the answer, which will simultaneously consume energy (Electricity) from your body. I hope you get the idea.
Miners compete with each other to solve a problem. And, whoever does it at first will get the reward for solving the problem which in turn validates transactions and puts them into a block chronologically.
As each idea or approach may have its own advantages and drawbacks, PoW has its own drawback as mentioned below:
Proof of Stake (PoS) is an alternate way of verifying and validating the transaction or block. In PoS-based mechanism, the creator of the next block is chosen via various combinations of random selection and wealth or age of coins also defined as stake.
Again, Simplest explanation is the best one.
Assume you (Block Creator) have $10,000 in your bank account (wallet). You chose to let that money (coins) stay in the bank account in order to generate interests (Block creation opportunity) on a regular basis. But the condition is the interest distribution will be done using a rule (PoS). The rules will be:
There won’t be a Block reward as in Proof of Work mechanism. Instead, miners (forgers in PoS) take the transaction fees.
It has downsides too. (As mentioned by Vitalik Buterin on a Reddit thread.)
There are many ongoing developments in both PoW and PoS mechanism which will help solve the existing problems.
I hope you now completely understand the difference between PoW (Proof of Work) and PoS (Proof of Stake) mechanisms.
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