When should PoW or PoS be used?

The consensus mechanism is crucial to the distributed design of a blockchain network because it reduces the centralization of the entities in charge of validating transactions. To keep a blockchain network’s immutable, trustless and distributed characteristics requires a fully functioning consensus mechanism.

The type of consensus required depends upon the needs of a network. For instance, proof-of-work is required for fraud prevention, security and trust-building in a network. Miners (or independent data processors) cannot be misled about a transaction because of the protection provided by PoW. Proof-of-work is a method of securing a crypto asset’s transaction history while also increasing the difficulty of changing data over time.

The requirement of a participating node demonstrating that the work is completed and submitted qualifies it to add new transactions to the blockchain, protecting any malicious activity.

If there are numerous copies of the blockchain on the network, PoW helps identify the most legitimate copy. Finally, proof-of-work is essential for building a distributed clock that allows miners to freely enter and exit the network while maintaining a consistent operation rate.

Similarly, network performance and security are significant consequences of using a PoS-based mechanism. PoS is utilized when high transaction speed is required for on-chain transactions per second and actual network transfer settlement. Moreover, validators are likely to own significant amounts of the network token, which financially incentivizes them to keep the chain secure.