As we mentioned in our introduction to the blockchain post, consensus mechanisms are very important to blockchains.
A consensus mechanism is the way in which participants in a network decide that a transaction is genuine, and add it to the chain. Proof of Work and Proof of Stake are the two different consensus mechanisms used today.
Proof of Work
Proof of Work is a system where computers compete with each other to solve a set of cryptographic puzzles. The computer that solves the puzzle first is allowed to create a new block and broadcast this block to a network of nodes. The nodes will then perform audits and confirm the validity of this new block. If everything checks out, this new block is added to the existing chain. This process is called mining, and the computers involved are referred to as miners. Bitcoin and Ethereum both run on Proof of Work blockchains, which is why you have probably heard the time "Bitcoin mining".
Proof of Stake
Proof of Stake blockchains require validators to buy and stake tokens to the network in question. If you are someone that has bought and staked tokens, your node may be chosen to validate a new block that is being added to the chain. The idea here is that to be a part of the network you have to commit your own money, which means that you should have a vested interest in the network succeeding.
Proof of Work vs Proof of Stake
The mining process needed for a proof of work blockchain uses up a lot of energy and computing power. Because of this, there are environmental concerns around proof of work blockchains. The Bitcoin network currently uses more energy than the country of Norway. Proof of stake systems are significantly more energy efficient. Usually, an average laptop is enough computing power to validate on a proof of stake blockchain.
But the mining process also makes proof of work blockchains very difficult to hack. A hacker would have to purchase and set up mining equipment, and pay the high electricity costs associated with running this equipment. Then, the hacker would have to solve the puzzle before anyone else on the network, create a block and then somehow convince at least 51% of the nodes in the network that this block is valid. In order to do that, the hacker would probably have to control more than 50% of the nodes in the network. In a network as large as Bitcoin's (for example), this is almost impossible to do.
Theoretically, it is simpler to attack a proof of stake blockchain. You have probably heard about hackers stealing $625 million from Ronin recently - that was a proof of stake blockchain. To hack a proof of stake blockchain, a hacker would have to buy half of the token supply and set up enough validators to make up over 50% of the network. However, once a network grows large enough the cost of doing this becomes prohibitive. To attack the Cardano network this way, you would need to spend $15 billion.
The mining process, where computers compete to solve puzzles, takes time. Because of this, proof of stake blockchains allow for faster transactions. A proof of stake algorithm can choose a validator much quicker than a proof of work algorithm can.
Proof of Stake is unproven at a large scale
No proof of stake network has yet grown to the size of Bitcoin or Ethereum. Because of this, they are not as decentralised as these behemoths. But, this may change in future. For one, Ethereum is moving to Ethereum 2.0, which will be a proof of stake network. Some even argue that a proof of stake network may actually end up proving to be more scalable, because there is a lower barrier to entry and specialised machinery is not needed to act as a validator on a proof of stake network.
Is Proof of Stake the Future?
Ethereum's aforementioned move to Proof of Stake with Ethereum 2.0 will be watched closely by many in the crypto community. Its success or failure may determine which type of consensus mechanisms most future blockchain projects will use. The reduced energy consumption associated with Proof of Stake networks are a huge plus. If Ethereum 2.0 proves that Proof of Stake networks can scale, and that they are secure at this large scale, there may be no going back.