A brief explainer of proof of work and proof of stake

If you’re familiar with cryptocurrency, you’ve probably heard the terms—proof of work or proof of stake—but most people stop at the surface level and never understand why it matters. 

Proof of work and proof of stake are just two different ways of reaching an agreement that a transaction was legitimate. In crypto, if someone tried to fake a transaction—say, sending the same bitcoin twice—computers on the network would flag it and reject it. Proof of work uses raw computing power while proof of stake other uses digital assets (crypto) that are put up for stake. It’s kind of like Monopoly where there are certain rules that need to be followed, and if a player would like to break one, the other players have to agree. In short, consensus needs to be reached, also known as consensus mechanism.  

Proof of work 

The term proof of work predates from bitcoin, as you must prove you put in the work (computing power) to solve the complex math puzzle that determines who gets to add the next block, making it extremely hard to cheat.  

However, how secure it is depends on how much computing power the network has behind it. The first one to solve one of these puzzles earns some crypto as a reward. In bitcoin’s case, you earn 3.125 bitcoins.  

This is where the term crypto miners originated. 

Miners can team up and combine their computing power to have a better shot at solving the puzzle; this is called a mining pool, which is like a lottery system. Buying one lottery ticket has an extremely small chance of winning, but if you get some friends to buy hundreds of tickets, the chance of winning goes up significantly. If you win, you split the prize with everyone who chipped in. 

Proof of stake 

Instead of miners competing with computing power to solve puzzles, there are validators.  They put up their own crypto as collateral to earn the right to approve transactions, instead of using energy. They’re kind of like a notary at a bank who verifies crypto transactions. 

Additionally, the way to guarantee the validator is reliable is them having to put their own money up for “stake.” Once the validator puts their own money up and becomes authenticated, they are randomly selected to prose blocks, which are then verified by the rest of the network.   

The more crypto they have staked, the higher likelihood of them being chosen. 

Now, you might be asking, what is in it for the validator? What is the incentive? The incentive comes from two places. The first is the block reward for verifying the transaction.  The second is transaction fees. Every single time someone sends crypto; they pay a small fee (for ethereum, this typically ranges from a few cents to around 20 cents depending on the network traffic). A portion of that fee goes directly to the validator as a tip for processing the transaction.  

Validators, thus, earn from the network itself and from the people using it.   

As alluring as it might sound to be a validator, it’s not that easy. Most networks have a minimum that every person must deposit to become a validator. For ethereum, the minimum is 32 ether (roughly $64,000 as of June 1, 2026, based off a price of $1,990). 

For those who lack that capital, staking pools can come in handy. They combine their crypto with similar participants who do not have enough funds to collectively meet the minimum requirement and get a cut in the profit based on how much they individually put in.   

We can now see how each consensus differs in process but ultimately works toward the same goal in keeping the network secure.  

In the next section, we will cover the advantages and disadvantages of each.