What is Proof-Of-Stake ?
Last updated
Last updated
Proof of stake (PoS) is an approach used in the cryptocurrency industry to help validate transactions.
With proof of stake, participants referred to as “validators” lock up set amounts of cryptocurrency or crypto tokens—their stake, as it were—in a smart contract on the blockchain. In exchange, they get a chance to validate new transactions and earn a reward. But if they improperly validate bad or fraudulent data, they may lose some or all of their stake as a penalty.
Proof-Of-Stake consensus algorithm is based on randomly selecting a validator to verify the block and add that onto the blockchain. In order to guarantee validators does not perform false blocks, an amount is paid by the validator as stake.
If the validator misbehaves, this stake is diluted and this event is called slashing.
When the validator successfully verifies the block, they are rewarded with the native token of the blockchain they are running a node on.
Networks using proof of stake are easy to find among the cryptocurrency landscape. Here’s a list of several popular platforms using a proof of stake validation method:
Cardano
Avalache
Ethereum
Algorand
Nxt
Cosmos
ThorChain
Polkadot
| PROS | CONS |
|---|---|
Fast transaction times: Compared to competitive proof of work currencies, proof of stake offers fast transaction times and supports higher transaction volumes.
Security risk: With fewer computers in control of the network, there are added security risks. Notably, if someone controls 51% or more of a cryptocurrency, they get effective control over the entire network.
Low network fees: Proof of stake currencies typically charge very low fees due to the efficient network validation method.
Users need to run three pieces of software to participate in Ethereum's proof-of-stake.
Energy efficient: Fewer computers and less competition mean proof of stake coins require relatively little energy to maintain.
Proof-of-stake is more complex to implement than proof-of-work
