Proof of work vs. proof of effort: What is the difference?

Two blocks collide.
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Despite being such a new technology, there is a long-running debate about the best method blockchains use to verify transactions and add them to blockchain. The debate goes between proof of work and proof of effort, and there are cryptocurrencies that use each.

Proof of what?

This process of verifying transactions and adding them to a blockchain is known as a consensus mechanism. In essence, blockchains are interconnected databases that are constantly trying to stay in touch with each other. To maintain accuracy, all blockchains try to reach consensus. Achieving consensus ensures that transactions on the network are all matching and therefore legitimate.

Different blockchains use different methods to achieve this consensus. However, there are two that are most commonly used, proof of work (PoW) and proof of stake (PoS). Evidence at work is the consensus mechanism used by the most popular cryptocurrencies such as Bitcoin and Ethereum. Proof of effort is used by well-known cryptocurrencies such as Cardano, Avalanche and Polkadot. However, these are not the only consensus mechanisms used today. Developers are constantly coming up with new ways to reach consensus on a blockchain.

An understanding of proof of work and proof of effort helps to establish basic knowledge about the value of blockchain technology, advantages and disadvantages of different consensus methods and the current situation in cryptocurrencies.

Miners at work

Bitcoin, the first cryptocurrency to be launched, uses proof of work. It relies on “work” performed by miners. Miners are looking for one thing, a cryptocurrency reward. The reward is given for extracting the next block of transactions. The new block of transactions becomes part of the blockchain and can be viewed by anyone with an internet connection.

In order to mine the next block and earn their reward, miners must solve extremely complex mathematical problems. These problems are solved most quickly with the help of powerful computers running 24/7 to solve the problem associated with the next block. One of the benefits of proof of work is that less powerful computers can pool resources to compete with the more powerful computers for these rewards. This feature ensures that a person with a large amount of computing power cannot centralize block creation or act maliciously.

Validators and staking

Proof of effort and proof of work blockchains both have the same end goal, they are just achieved in different ways. Evidence of effort blockchains use validators instead of miners. There are no math problems, but there is still a reward. Validators “earn” the right to verify the next block of transactions by betting or “locking” their cryptocurrency for a specified period of time.

The consensus mechanism for proof of effort selects validators at random, but the ones with the most money that have been wagered the longest increase their chances of creating the next block. Just as miners with less powerful computers can group themselves on proof of work, validators on proof of effort can gather their money together to compete with other validators who may have more block-creating power. This is known as a betting pool.

The big picture

Each consensus mechanism has advantages and disadvantages. Fans of proof of work highlight safety and accessibility as benefits. The difficulty of extracting the next block increases security because exorbitant amounts of time, energy and resources would have to be used to add erroneous transactions to the blockchain. It is simply not worth the time or energy. In addition, proponents of evidence of work will argue that evidence of effort is less decentralized as it concentrates the creation of blocks among those with the most money. Because proof of work, miners only need an internet connection to earn rewards, creating blocks is more distributed.

Those who fight for proof of effort have good reason to believe that proof of work can become a thing of the past. Proof of work requires large amounts of time and energy to create the next block. As a result, transactions can be painfully slow compared to evidence of intervention mechanisms. In addition, transaction fees are significantly less than those on proof of work blockchains.

This combination is highlighted as one of the main reasons why the Ethereum network is moving to proof of effort. Known as Ethereum 2.0, the proof of stake mechanism will allow the Ethereum blockchain to handle the increased traffic that has come with a wave of new users in recent years without having to rely on a Layer 2 solution.

Proof of work versus proof of effort is an age-old debate in the world of blockchain. Realize that there are strengths and weaknesses in both. This debate is likely to evolve over time just as blockchains do. Without proof of work, there would be no proof of effort. And without proof of effort, newer blockchains would not develop alternative methods that help meet the changing demands of cryptocurrency users.

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