Staking basics

Introduction to Proof of Stake (PoS)

Shivendra Singh

Apr 14, 2023 • 5 min read

Proof of stake (PoS) is a consensus mechanism used by blockchains which validates the transactions and helps in securing the network. In PoS, the validators are selected randomly in order to add new blocks to the blockchain based on the amount of cryptocurrency they stake which is in contrast to proof of work (PoW), where in order to select the validators, miners compete to solve complex mathematical puzzles to add new blocks to the blockchain.

Also Read: What is Cryptocurrency

How does proof of stake work?

In PoS, validators are chosen to add new blocks to the blockchain based on the amount of cryptocurrency they stake.The more cryptocurrency a validator stakes, the more likely they are to be chosen to add a new block.

In order to become a validator, users have to stake a certain amount of cryptocurrency (above the minimum criteria) into a staking pool. This cryptocurrency is locked up and cannot be used until the validator is unstaked.

When a validator is chosen to add a new block, they will be rewarded with the transaction fees and newly minted cryptocurrencies. The rewards are therefore distributed proportionally depending on the amount of cryptocurrency that the validator is staking.

Also Read: What is a Validator

Mining power in proof of stake:

In PoS, mining power can be determined by the amount of cryptocurrency that a validator stakes. The more cryptocurrency a validator stakes, the more likely they are to be chosen to add a new block in the blockchain. This makes it even more difficult for attackers to take over the network, as they would need to control a majority of the cryptocurrency.

Also Read: BNB Validators

Proof-of-work vs. proof-of-stake

Proof of work (PoW) and proof of stake (PoS) are two different consensus mechanisms that are used by the blockchains in order to validate transactions and secure the network. PoW is the older and more widely used consensus mechanism, while PoS is a newer and much more energy-efficient alternative.

In PoW, miners have to compete and solve complex mathematical puzzles in order to add new blocks to the blockchain. The first miner who solves the puzzle is generally awarded with cryptocurrency. This process requires a lot of computing power and energy, which can be a major drawback.

In PoS, validators are chosen to add new blocks to the blockchain based on the amount of cryptocurrency they hold. PoS is a more energy-efficient process than PoW, as it does not require computing energy to compete to solve complex mathematical puzzles.

Also Read: Proof of work vs Proof of stake

Pros of proof of stake

There are several advantages to using proof of stake over proof of work.

Energy efficiency: PoS is a more energy-efficient consensus mechanism than PoW as it does not require a high amount of electricity in order to compete to solve complex mathematical puzzles.
Scalability: PoS is more scalable than PoW. This is because it does not require miners to compete to solve complex mathematical puzzles, which slows down the network and makes it less accessible.
Fairness: PoS is more fair than PoW. This is because anyone can become a validator, regardless of their system’s computational power.

Also Read: Proof of work

Cons of proof of stake

There are also some disadvantages to using proof of stake.

Centralization: PoS can be more centralized than PoW because validators need to stake a large amount of cryptocurrency in order to be chosen to add new blocks to the blockchain. This means that a small number of validators could control the whole network.

Volatility: The cryptocurrency price can fluctuate wildly, which can severely affect the security of the network. If the price of cryptocurrency falls, validators may be less incentivized to stake their coins, which could lead validators to unstake and hence weaken the security of the network.

Also Read: Blockchain Components

Proof-of-stake coins list

There are a number of cryptocurrencies that use proof of stake as their consensus mechanism. Some of the most popular PoS coins include:

Ethereum (ETH)
Cardano (ADA)
Tezos (XTZ)
Solana (SOL)
Cosmos (ATOM)
Polkadot (DOT)
TRON (TRX)
MATIC

Conclusion

Proof of stake is much more energy-efficient as compared to the majority of consensus mechanisms. It is also more scalable and fair. However, PoS can still be a very early-stage consensus mechanism whose future is still ascertained.

To summarize, PoS is a promising consensus mechanism that has the potential to be the most popular consensus mechanism of all the consensus mechanisms.

Also Read: Flash Loan Attack

Frequently Asked Questions (FAQs)

Q) What are PoS and POW?

Ans) Proof of stake (PoS) and proof of work (PoW) are two different consensus mechanisms used by blockchains to validate transactions and secure the network.

In PoW, miners compete to solve complex mathematical puzzles to add new blocks to the blockchain. The first miner to solve the puzzle is rewarded with cryptocurrency. This process requires a lot of computing power and energy, which can be a major drawback.

In PoS, validators are chosen to add new blocks to the blockchain based on the amount of cryptocurrency they hold. This is a more energy-efficient process than PoW, as it does not require miners to compete to solve complex mathematical puzzles.

Q) Is Ethereum a PoS or POW?

Ans) Ethereum has officially transitioned from PoW to PoS in a process called The Merge.

Q) How does PoS handle network scalability and transaction throughput?

Ans) PoS is more scalable than PoW because it does not require miners to compete to solve complex mathematical puzzles meaning that PoS blockchains can process more transactions per second than PoW blockchains.

Q) What are the risks of proof-of-stake?

Ans) A major risk of PoS is that it can be more centralized than PoW. This is because validators need to stake a large amount of cryptocurrency in order to be chosen to add new blocks to the blockchain. This means that a small number of validators could have access of the whole network.

Q) Can Bitcoin be proof-of-stake?

Ans) Bitcoin is currently a PoW blockchain and as of now it is not clear if it can be converted to PoS. There are a number of technical challenges that would need to be addressed in order to achieve this.

Q) How does Ethereum's proof-of-stake work?

Ans) Ethereum's PoS mechanism is called Casper. In Casper, validators are chosen to add new blocks to the blockchain based on the amount of ETH they stake. The more ETH a validator stakes, the more likely they are to be chosen to add a new block.

Validators are also required to participate in a voting process to approve new blocks. This helps to ensure that the network is secure and that only valid blocks are added to the blockchain.