Proof of work & Proof of stake

Proof of work

PoW idea was originally published back in 1993, but the term “proof of work” was used for the first time in a document published in 1999.
Proof of work is a requirement to define an expensive computer calculation, also called mining, that needs to be performed in order to create a new block on blockchain.

Finding the solution to that calculation problem requires huge amount of computing power.

PoW serves two purposes:

To verify the legitimacy of a transaction, hence avoiding double-spending;
To create new digital currencies by rewarding miners for performing the previous task.

Bitcoin is mined using proof of work.

Proof of stake

Proof of stake is a different way to validate transactions.

With the proof of stake, the creator of a new block, called a forger, is chosen in a deterministic way, depending on its wealth, also defined as stake.

The idea was suggested first on the bitcointalk forum back in 2011 as solution to reduce the huge consumption of electricity required by Pow, and the first digital currency to use this method was Peercoin in 2012.

Since all the currencies are previously created in the beginning, there is no block reward. the forgers take the transaction fees.