Essentially, they refer to the mechanism through which the actors who are able to confirm transactions on blockchains are chosen and each has its own advantages and disadvantages.
- In Proof of Stake, the more blocks a miner already has within a blockchain, the more blocks they are able to mine.
- In the case of Proof of Work, the larger the computing power owned by the actor, the more transactions they are able to confirm on the blockchain.
- In Proof of Authority, a certain number of actors are pre-determined to be able to confirm transactions and this is very common in private blockchains.
Each of these different concepts has their advantages and disadvantages For example Proof of Work systems are susceptible to 51% attacks. This is because should an actor has too much power within a blockchain, they are able to confirm false transactions and stop the transactions of others.
Proof of Stake
Proof of Stake means that an individual who wishes to mine or validate a transaction on the blockchain can do so depending on how many blocks they already hold. As the name partially implies, the greater the number of blocks or ‘stake’ that the miner has in the blockchain, the larger the mining power they are given on the blockchain.
Proof of Work
Proof of Work (PoW) is the conventional method through which new blocks are created after transactions are completed.
Transactions on the blockchain need to be verified by miners. How this works is that a miner verifies a block of transaction through solving a mathematical puzzle based on prime numbers.
Blockchain consensus confirms the completion of the transaction/work and a new block is created. Each block gives a certain number of rewards to the miner that completes the transaction.
Proof of Authority
Proof of Authority (POA) is a consensus method in which a number of blockchain actors within the ecosystem are given the power to validate transactions and ultimately decide whether new blocks will be added to the blockchain or not.
In the case of Proof of Authority, it is not suitable for public blockchains as there is essentially a monopoly with a few actors who may confirm transactions.
Which is best?
Many argue that Proof of Stake is the most beneficial system seeing as actors are less likely to jeopardize a system they have a huge stake in. However, each all these methods have their own benefits and can be applied to a variety of blockchain systems depending on the needs of the participants.