Distributed Consensus
The basic idea behind a distributed consensus mechanism is to find a participant in the network to add a new block containing transactions to the blockchain without being dishonest to the network rules. A successful participant adds a block to increase the length of the chain. The other participants of the network make sure the block is valid. If not, the block gets rejected from the majority and gets irrelevant. As incentive to participate in this process the block creator (miner/validator) gets a reward for providing resources. The amount of this resources also determines the probability of being able to create a valid block. The more resources, the higher the probability. The most commonly used resources are computing power (hash rate) or capital (stake), but also things like storage space are possible.
Proof of Work (PoW) is a consensus algorithm that involves miners competing to solve a mathematical puzzle which requires a deliberately effortful trial and error process to find a solution in order to validate transactions and create new blocks on the blockchain. The miner who finds a solution first is rewarded with a block reward and the transaction fees associated with the transactions included in the new block. The main advantage of PoW is that it is a well-established and tested mechanism for achieving distributed consensus. However, it is also criticized for its high levels of energy consumption and for the potential for miners to form monopolies. It could be said that a PoW mined currency is an abstraction of conserved energy.
In contrast, Proof of Stake (PoS) is a consensus algorithm in which the creator of a new block is chosen in a deterministic way, depending on their stake in the network. This means that the more cryptocurrency a user holds, the more likely they are to be chosen to create a new block. The main advantage of PoS is that it is more energy-efficient than proof of work, because it does not require miners to compete in computationally intensive mathematical contests. However, it is a relatively new mechanism and has not yet been widely tested and it is kind of a closed system with no anchorage to the physical world (in contrast to Bitcoin which uses energy for mining).
PoW sustainability
The mining process can be environmentally damaging, as it requires a large amount of electricity.
A counter argument would be that the energy use of PoW could have positive effects on sustainable energy production if done right. If PoW mining is carried out using renewable energy sources, it could potentially help to stabilize the energy grid by providing a very elastic source of demand for renewable energy. This could help to ensure that renewable energy sources are utilized more consistently in case of problematic overproduction, which is a real thing and could in turn help to improve the stability and reliability of an energy grid with many distributed producers. Producers gets rewarded for the energy by mining if they can not sell their power to the grid. Bitcoin mining in a way could subsidize the energy production site to make smaller or more offsite energy generation facilities feasible.
Another way that proof of work mining could potentially be used as an incentive for green energy technologies is by executing a policy to reward miners who use renewable energy sources to power their mining operations. For example, a Bitcoin mining pool could offer higher rewards to miners who can prove that they are using renewable energy sources to power their mining rigs. This could encourage miners to switch to renewable energy sources in order to maximize their rewards. Also state regulation could enforce this or penalize and, in the most extreme case, ban environmental harmful mining.
PoW weaknesses
PoW is vulnerable to centralization, as the mining process is dominated by a small number of large mining pools, which can potentially lead to reduced security and decentralization in the network.
Another problem with PoW is that it can be subject to mining attacks (51% attack), in which malicious miners cooperate and attempt to gain an unfair advantage by controlling the majority of the network’s computing power.
PoS weaknesses
One potential weakness of proof of stake is that it can potentially lead to centralization of the network. Because miners with a larger stake have a higher probability of mining the next block, those with a large stake are likely to earn a larger share of the rewards. This could potentially lead to a small group of miners with a large stake controlling a significant portion of the network, which could make it more difficult for other miners to compete.
Another potential weakness of proof of stake is that it can be vulnerable to so-called “nothing at stake” attacks. In a proof of stake system, validators have no base cost in participating, which in case of a (even non-malicious) fork encourages them to mine both chains, which could cause the network to become less secure and reliable. In Ethereum the solution for this attack vector is called „slashing“, which penalizes malicious behavior by destroying some or all of their stake. To receive rewards validators must not miss to participate when called upon, so a constant network connection and participation is necessary.
PoS could also be subject to a 51% attack, which would take the majority of the total stake controlled by malicious participants.