Proof of Work and Proof of StakePoW
Proof of work secures a blockchain through computing power (mining); proof of stake secures it through participants locking up the network's own coins.
Proof of work and proof of stake are the two main ways blockchains decide who adds the next block. Proof of work spends energy on puzzles; proof of stake locks up coins that can be destroyed for bad behaviour. The choice shapes a coin's energy use, security costs and how holders earn rewards.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 3 min
- Also called
- PoW vs PoS, Consensus mechanisms, Mining vs staking
- Updated
PoW and PoS in plain words
Both are really ways to decide who gets to write the next block, while stopping anyone from faking many identities.1
In proof of work, voting power comes from computing power — roughly one CPU, one vote.2
Proof of stake makes validators lock up something valuable that they lose if they cheat.3
How each one picks the next block
PoW: build a block
Miners gather transactions into a candidate block.
PoW: spend computing power
Each hash attempt is effectively a vote, weighted by computing power.2
PoS: lock up stake
On Ethereum, becoming a validator means depositing 32 ETH.3
PoS: propose and attest
A selected validator proposes a block and others vote on it.
PoS: punish bad actors
Dishonest validators can lose part or all of their stake.3
Both: pay rewards
Honest miners or validators earn new coins and fees.
Worked examples
Example 1 — Validators from a holding
3 validators, 4 ETH spareA hypothetical holder has 100 ETH and solo validators need 32 ETH each.
| Full validators | 100 ÷ 32 = 3 (rounded down) |
| Left over | 100 − 96 = 4 ETH |
Each validator requires a deposit of 32 ETH into the deposit contract.3
Example 2 — Staking yield
0.96 ETH a yearA hypothetical validator stakes 32 ETH at a 3% yearly reward rate.
| Yearly reward | 32 × 3% = 0.96 ETH |
The reward isn't risk-free: misbehaving can cost part or all of the stake.3
Example 3 — Energy gap
0.005 TWhA hypothetical PoW network uses 100 TWh a year. A PoS network uses 0.005% of that.
| PoS use | 100 × 0.005% = 0.005 TWh |
After switching to proof of stake, Ethereum uses a tiny fraction of Bitcoin's electricity — around 0.005%.4
Proof of work vs proof of stake
| Aspect | Proof of work | Proof of stake |
|---|---|---|
| Scarce resource | Computing power and electricity | Staked coins |
| Penalty for cheating | Wasted energy and hardware | Stake can be destroyed |
| Energy use | High | Much lower |
| Track record | Longer | Younger |
Why traders care
Yield on holdings
PoS staking can add return, but adds Exposure to penalties.
Supply pressure
Miner sales affect Liquidity on PoW coins.
Long-term views
Consensus design feeds Fundamental Analysis.
ESG screens
Energy use matters for some Portfolio Allocation rules.
Advantages and disadvantages
Advantages
- PoW has a long security record.
- PoS uses far less energy.
- PoS lets holders earn staking rewards.
- Both make attacks costly.
Disadvantages
- PoW uses large amounts of energy.
- PoS is younger and less tested.
- Both can concentrate in big pools.
- Staking can lock funds for a time.
Going deeper
Read as far as you need. Each level builds on the one before it.
Two ways to pay for security
Beginner
Proof-of-stake networks need far less computing power, and so far less electricity, than proof-of-work ones.4
What a validator risks
Intermediate
In proof of stake, the value at risk is the locked stake rather than the energy spent on mining.3
Trade-offs
Advanced
Proof of stake is newer and less battle-tested than proof of work, which is why some investors still prefer PoW for base-layer money.3
Common mistakes
Assuming staking is risk-free
Stake can be slashed.
Thinking PoS has no costs
Validators still run hardware and lock capital.
Mixing up the two
Mining and staking rewards work differently.
Ignoring lock-ups
Unstaking can take time.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Both pick who adds the next block.
- PoW uses computing power and energy.
- PoS uses staked coins that can be destroyed.
- PoS uses far less electricity.
- PoW has the longer track record.
Frequently asked questions
Is Bitcoin proof of work?
Is Ethereum proof of stake?
Can I stake without 32 ETH?
Further learning
- Fundamental Analysis
Weigh network design.
- Exposure
Staking risks.
- Dividend Yield
A loose analogy for staking yield.
- Portfolio Allocation
Fitting crypto into a portfolio.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- ethereum.org. Consensus mechanisms (opens in a new tab) Checked .
- Satoshi Nakamoto. Bitcoin: A Peer-to-Peer Electronic Cash System (opens in a new tab) Checked .
- ethereum.org. Proof-of-stake (PoS) (opens in a new tab) Checked .
- U.S. Energy Information Administration. Tracking electricity consumption from U.S. cryptocurrency mining operations (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.