by Gene Michael Stover
created Sunday, 2026 August 2
updated Sunday, 2026 August 2
original at cybertiggyr.com/mining_vs_staking.html
(I wrote this to answer a friend's question.)
A couple of key features of cryptocurrencies is that they are decentralized, peer-to-peer systems, & the peers don't trust each other.
I'll use peer and worker interchangeably from now on in this file.
Bitcoin, the original cryptocurrency, dealt with the lack of trust by creating a race between the peers. The first worker to produce a solution would send it to the other peers. They would verify it. If the proposed solution followed the rules, they would all accept it & begin searching for a solution to the next problem. Such a system is called proof-of-work & the peers are called miners.
An alternative to mining is proof of stake. With proof-of-stake, each peer is associated with collateral. The network of peers take turns solving a math problem, except since they aren't competing as miners do, the rules for solving the problem are considerably relaxed. As with mining, they all check a proposed solution. If it's acceptable, the group decides whose turn is next, & that peer begins working on the solution to the next problem. In this system, the workers as called validators (at least they are in Ethereum).
For this, you'll need to know something about Cryptographic hash functions. Here's a cheat sheet of important details. If they raise any kind of “No way, this can't be true” objections in your mind, go read about Cryptographic hash functions & come back here.
For proof-of-work cryptocurrencies, this “hard problem” everyone mentions is: Given the data for a new block in our blockchain, with some spaces where you can adjust values, adjust those values until the hash value of the whole block is less than Limit.
Example to make it concrete...
Let's say that I have a hash function that gives an 8-bit result (which would be useless other than for explanations like this one). Its inputs are a 2-digit number. So if I give a number to our hash function, it gives me a number on the interval 0..255 (because that's what you can represent with 8 bits, unsigned, starting with 0).
Let's say that you tell me part of the input is 5. I can find another digit, D. You want me to find D such that 5 + D < 128.
Notice that the “less than 128” restriction is equivalent to saying that the high bit of the hash value is zero. Let's say that I pick 8 for D. I apply our hash function. There's a 50:50 chance that the high bit is 0. If it is, I've succeeded & I report to you that D = 8. Otherwise, I try another value for D. Again, there's a 50:50 chance that the high bit is 0. If it is, I report that value to you. Otherwise, I try again. I keep doing that until I find a value of D for which the hash value is less than 128. You can check my work to see that I'm honest.
You could make it more difficult by telling me to find a value of D so that the hash value is less than, say, 64; now it'll take me twice as long (on average) to find a suitable value of D. Or you could specify that it's less than 32. And on, & on.
Okay, big deal. We have this 8-bit hash function & a 2-digit input. Big woop.
But what if the hash function gives 256-bit values, & the input is mebibytes long? If the restriction you place on the output is still that the high bit is zero, I still have a 50:50 chance of finding a suitable value with each attempt, but now you've specified that the top 30 bits must be zero. Now I have about 1:billion chance of finding a suitable value each time I try.
Glancing at a Bitcoin blockchain explorer just now, it looks like the top roughly 40 bits must be zero. 2^40 is (very roughly) 1 trillion. So each attempt at a solution has a 1:trillion chance of succeeding.
As more peers join the network, as custom hardware increases the computation rate of each peer, the network raises the difficulty by specifying that more & more of the high bits must be zero. And they are all racing to find the next solution first. That's why proof-of-work consumes enough electricity that people are concerned. Also, since finding a solution is unpredictable, sometimes it shows up faster than expected, sometimes longer.
Because the workers are not racing towards a solution in a proof-of-stake system, they needn't burn as much electricity as miners do in a proof-of-work system. In theory, they needn't be specialized hardware. However, where the proof-of-work network effectively excludes participants that haven't purchased enough custom hardware, the peer-to-peer network of a proof-of-stake system excludes participants that haven't staked enough collateral.
Each time a worker proposes a bogus solution & the other peers detect it, that worker loses something.
In a mining system, they've wasted the time & energy to create the bogus solution, they lose trust with the network of peers. Eventually, they could be ostracized temporarily or permanently. However, the time & energy spent on the bogus solution is probably less than what would have been spent on a legitimate solution. And if ostracized, they could generate a new identity & re-enter the network. (They might have to build trust that way, but they've still circumvented the exclusion.)
In a proof-of-stake system, the miscreant worker loses some of their stake. Eventually, the amount of stake is below the minimum threshold, & they are unable to participate in the peer-to-peer network.
These systems rely on a majority of peers following the rules. An attempt to thwart this is called a Sybil attack.
And here's some background knowledge that could help if my explanation made too little sense...
Cryptographic hash functions & hash functions functions in general are fundamental to cryptocurrencies.
Though they are mostly treated as a “store of value”, cryptocurrencies were intended as implementations of electronic cash. Because they are rarely used as electronic cash, & the world would benefit from electronic cash, cryptocurrencies are a failure or a haven't-succeeded-yet. Before Bitcoin, there were other implementations of electronic cash. Read about the work of David Chaum if you are interested in that.
Note that digital cash differs from electronic funds transfers & credit card transactions.