What is Proof Of Work and Proof Of Stake?

Short answer:

Both are methods of processing blockchain transactions.

Long Answer:

It works like this…for every group (or ‘block’) of transactions a single computer completes, it is rewarded with cryptocurrency. There are two common methods used to win the right to process a block of transactions: Proof of Work and Proof of Stake.

In Proof of Work, each computer completes a complex math problem, the first to solve the problem and ‘prove the work’, wins the right to process the block of transactions (and earn cryptocurrency).

In Proof of Stake, a computer wins the right to process a block based on how long it has been validating transactions and how many coins it has held (or ‘staked’) in its account (or ‘stake pool’).

Proof of Work is more secure, but requires A LOT more energy, and typically has slower processing times and higher transaction fees.

Proof of Stake is less secure, requires less energy, and typically has faster processing times, as well as lower transaction fees.

‘Ok, but what stops one of these computers from lying about the transaction value and skimming some cold hard cash off the top?’

Because this transaction list is sent publicly to thousands of individual computers across the world, if one of them tries to alter the transaction values, the others all ‘call bullshit’ and they lose the transaction.

This way, digital payments can be sent securely without any centralised control (aka banks).

Pretty neat.