Crypto Clarified: Proof of Work (PoW) vs. Proof of Stake (PoS)

Proof of Work vs. Proof of Stake

I wanted to give everyone a little more context of what Proof of Stake versus Proof of Work means in plain language. A blockchain can be thought of as a history book that contains all past transactions that occur on that blockchain. Each block in a blockchain is a page of the blockchain’s history book that builds off the events of the previous pages to create a full picture of account balances and transfers. In order to make sure the author of each page is honest; two different economic mechanisms can be employed. One is called Proof of Work which forces the author to spend a lot of money on energy and computing power to solve a complicated mathematical puzzle to write a page or block. The other is called Proof of Stake which compels the author to “stake” valuable assets against his or her truthfulness, these assets can be seized if he or she acts dishonestly. In both cases, economic value is spent or risk to guarantee author truthfulness. However, Proof of Stake is dramatically more environmentally friendly because it saves the enormous amount of energy required to solve the complex math problem. On September 15th, the most valuable smart contract blockchain, called Ethereum, swapped out Proof of Work for Proof of Stake. This shift is momentous because it will lead to a 99% reduction in energy usage in order to run the Ethereum blockchain. This makes Ethereum both more environmentally friendly, and ESG compliant.

IMPORTANT DISCLOSURE

The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.

This is not an offer to buy or sell, or a recommendation to buy or sell any of the cryptocurrencies mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

Investing in cryptocurrencies comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.

© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.

Van Eck Securities Corporation, Distributor
666 Third Avenue, New York, NY 10017