Questions ยป What is proof-of-stake?

What is proof-of-stake?

Proof-of-stake (PoS) is a consensus algorithm used by some cryptocurrencies, such as Cardano, Ethereum 2.0, and others, as an alternative to proof-of-work (PoW).

In PoS, validators are chosen to create and validate new blocks based on the amount of cryptocurrency they hold and “stake” in the network. The higher the amount of cryptocurrency staked, the greater the chance of being chosen to validate the next block. Validators are incentivized to act in the best interest of the network because they can lose their staked cryptocurrency if they validate fraudulent transactions or act maliciously.

This is in contrast to PoW, where miners are rewarded for solving complex mathematical problems and adding new blocks to the blockchain. In PoS, validators are instead rewarded with transaction fees and a portion of the newly minted cryptocurrency that is added to the network through block creation.

PoS is often seen as a more energy-efficient and environmentally-friendly alternative to PoW because it does not require the significant computational resources and energy consumption that PoW does. Additionally, PoS is less vulnerable to a 51% attack, since an attacker would need to control a majority of the staked cryptocurrency in order to manipulate the blockchain.

However, PoS also has some potential drawbacks, such as the possibility of centralization if a small number of large validators control a significant portion of the staked cryptocurrency. Additionally, it can be more difficult to distribute newly minted cryptocurrency in a fair and decentralized way in a PoS system.

Overall, PoS is a different consensus algorithm that provides an alternative to PoW for validating transactions and adding new blocks to the blockchain in a cryptocurrency network.