What Is Proof of Stake (PoS)? Here’s What You Need to Know
Proof of stake is the better alternative to Bitcoin’s proof of work, but how does it actually work?
When it comes to decentralized ledger technology, there are endless applications, including blockchain. One of the key ways to define a blockchain is through its consensus mechanism, the method used to validate transactions made on the public ledger.
If you ever tried to learn about how blockchain consensus works, you may have come across the term “proof of stake.” Proof of stake is a simple concept to understand, but it’s one of the most important concepts in blockchain. So, what is proof of stake, and why is it important?
How Does Proof of Stake (PoS) Work?
Proof of stake is a consensus algorithm that allows for the secure and reliable verification of transactions on a blockchain through staking. It works by allowing users to “stake” their coins to verify blocks of transactions. In proof of stake, blocks are created by “validators,” and the more coins someone has, the more likely they are to be chosen as a validator.
The more coins you stake, the higher your chance of verifying a block and earning rewards. This system creates an incentive for users to hold on to their coins and helps to secure the blockchain against fraudulent activity.
Proof of Stake vs. Proof of Work (PoW) Explained
Proof of stake is an alternative to proof of work, the consensus mechanism Bitcoin and many other cryptocurrencies use. Proof of work is more computationally intensive, requiring crypto miners to solve complex mathematical problems to verify blocks of transactions.
The key difference between the two mechanisms is in block verification. In proof of stake, the block validator is chosen randomly from those with staked funds. With proof of work, miners compete to mine the next block.
For this reason, proof of work leads to energy waste as miners compete to solve these problems. Proof of stake is seen as a more sustainable and environmentally friendly alternative to proof of work.
Pros and Cons of Proof of Stake
While proof of work is the most common consensus algorithm, proof of stake is gaining popularity due to its many advantages. Not only is it is more efficient, but it can lead to lower transaction fees. Lastly, proof of stake also helps to prevent centralization of power, which is a major concern with proof of work.
Bitcoin and Ethereum are the world’s largest cryptocurrencies, but they have different uses.
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