Proof of work vs proof of stake
Written by an ex-institutional trader. What blockchain consensus is, how proof of work and proof of stake each secure a network, their energy use and trade-offs, and which coins use which, compared side by side.
Direct answer
Proof of work and proof of stake are the two main ways a blockchain agrees on which transactions are valid without a central authority. Proof of work, used by Bitcoin, has computers (miners) compete to solve hard puzzles using real electricity; the winner adds the next block and earns the reward. Proof of stake, used by Ethereum since 2022, has participants (validators) lock up coins as collateral and be chosen to add blocks, with no puzzle-solving.
The core trade-off is energy versus design simplicity. Proof of work is battle-tested and secured by physical cost, but uses a lot of electricity. Proof of stake uses over 99 percent less energy and allows faster, cheaper networks, but is newer and concentrates influence among those who hold the most coins. Neither is simply "better"; they make different trade-offs, which is why Bitcoin and Ethereum each chose differently.
Why blockchains need consensus
A blockchain has no central authority, so thousands of independent computers must somehow agree on which transactions are valid and in what order. That agreement process is called consensus, and it is what stops anyone from cheating, for example by spending the same coin twice.
Proof of work and proof of stake are the two main ways to reach consensus. They solve the same problem in very different ways, and the choice shapes a network's energy use, speed and security.
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Proof of work
Proof of work, used by Bitcoin, has computers called miners compete to solve a hard mathematical puzzle. The first to solve it earns the right to add the next block and collects the block reward. Solving the puzzle takes enormous computing power and real electricity, and that physical cost is exactly what secures the network: to attack it, you would need to out-spend the entire honest mining base.
The mining reward is what the Bitcoin halving cuts in half every four years. The downside is energy: proof of work consumes a large amount of electricity by design.
Proof of stake
Proof of stake, used by Ethereum since its 2022 upgrade, replaces puzzle-solving with collateral. Participants called validators lock up (stake) coins, and the network selects one to add the next block, roughly in proportion to how much they have staked. Honest validators earn rewards; dishonest ones can have part of their stake taken away, a penalty called slashing.
There is no race to burn electricity, so proof of stake uses more than 99 percent less energy than proof of work. It also lets ordinary holders help secure the network and earn a yield through staking, without expensive hardware.
Side by side
| Feature | Proof of work | Proof of stake |
|---|---|---|
| Who adds blocks | Miners (solve puzzles) | Validators (stake coins) |
| What secures it | Electricity and hardware cost | Value of staked coins |
| Energy use | Very high | Very low (99%+ less) |
| Hardware needed | Specialised mining rigs | Ordinary computer plus stake |
| Track record | Longest (since 2009) | Newer at large scale |
| Used by | Bitcoin, Litecoin, Dogecoin | Ethereum, Solana, Cardano |
Which is better?
Neither is simply better; they make different trade-offs.
- Proof of work is the most battle-tested and is secured by real, hard-to-fake physical cost. Its weakness is high energy use.
- Proof of stake is far more energy-efficient and enables faster, cheaper networks. Its weaknesses are that it is newer and can concentrate influence among the largest coin holders.
That is why Bitcoin and Ethereum chose differently: Bitcoin prioritises maximal, time-tested security as digital money, while Ethereum prioritises efficiency and flexibility as a platform for apps. Both models secure hundreds of billions of dollars in value today.
If you want to own coins on either type of network, buy them on a reputable AUSTRAC-registered exchange, and remember that staking rewards and selling crypto are both taxable in Australia.
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All three are AUSTRAC-registered Australian exchanges. Crypto is volatile; only invest what you can afford to lose.
This is general information, not financial advice. Last reviewed: 2026-06-02.
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Frequently asked questions
What is the difference between proof of work and proof of stake?
Both are ways a blockchain decides who adds the next block of transactions without a central authority. Proof of work makes computers compete to solve a hard puzzle using real electricity, and the winner adds the block; this is what Bitcoin uses. Proof of stake instead has participants lock up coins as collateral, and the network picks one to add the block, with no puzzle-solving; this is what Ethereum uses. The main practical difference is that proof of stake uses far less energy.
Why did Ethereum switch from proof of work to proof of stake?
Ethereum switched in September 2022, in an upgrade called The Merge, mainly to cut its energy use, which fell by more than 99 percent, and to make the network more scalable for future upgrades. Proof of stake also lets ordinary holders help secure the network and earn rewards by staking, rather than needing expensive mining hardware. Bitcoin has not made this change and continues to use proof of work.
Is proof of stake more secure than proof of work?
Neither is simply more secure; they secure the network in different ways. Proof of work is secured by the real-world cost of electricity and hardware, and has a long track record. Proof of stake is secured by the value validators stake, which can be taken away (slashed) if they cheat. Proof of work is more battle-tested over time, while proof of stake is newer and its long-term security under stress is less proven. Both are considered robust for major networks.
Does proof of work waste energy?
Proof of work does use a large amount of electricity by design, because the energy cost is what secures the network. Whether that is wasteful is debated: critics point to the environmental footprint, while supporters argue the energy buys real, hard-to-fake security and increasingly comes from surplus or renewable sources. What is not disputed is that proof of stake uses dramatically less energy for the same job, which was a major reason Ethereum moved to it.
Which cryptocurrencies use proof of work and which use proof of stake?
Bitcoin is the best-known proof-of-work coin, and Litecoin and Dogecoin also use it. Proof of stake is now more common among newer networks, including Ethereum (since 2022), Solana, Cardano and many others. Some networks use variations or hybrids. As a rough guide, Bitcoin and a handful of older coins are proof of work, while most large smart-contract platforms today are proof of stake.
What is staking in proof of stake?
Staking is locking up your coins as collateral to help secure a proof-of-stake network, in return for rewards. By staking, you back the honest operation of the network, and if you (or the validator you delegate to) behave dishonestly, some of the stake can be taken away. For ordinary holders, staking is a way to earn a yield on coins they hold long term. In Australia, staking rewards are generally treated as ordinary income when received; see the crypto tax guide.
