What Is Proof of Stake (PoS)?
In a Proof of Stake (PoS) system, validators are required to pledge a ‘stake’ of digital currency for the chance to be randomly chosen to validate transactions. The process is not unlike a lottery, whereby the more tokens staked, the better the odds.
A type of consensus mechanism, PoS is seen as a more sustainable and environmentally friendly alternative to Proof of Work (PoW) in validating cryptocurrency transactions. It is also more secure against 51% attacks. However, as the system favours entities with a higher number of tokens, PoS has drawn criticism for its potential to lead to centralisation.
How Does Proof of Stake Work?
In PoS networks, validators are responsible for verifying new transactions and updating the blockchain. Upon completion, each validator receives a transaction fee as a reward.
Validators in a PoS system are selected based on the number of tokens they hold. This pseudo-random process largely depends on the total amount of tokens a validator has allocated; the more tokens a validator has staked, the more likely they are to be chosen to add new blocks. Some PoS networks require a minimum amount to stake, and others may take into consideration the staking period, as well.
Examples of PoS consensus mechanisms: Cardano (ADA), Ethereum (ETH), Polkadot (DOT), Algorand (ALGO), Cosmos (ATOM).
