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  3. Proof of Stake

Proof of Stake

Definition of ‘Proof of Stake - What is proof of stake? Proof of stake is a consensus mechanism used by cryptocurrencies to process transactions and create new blocks on a blockchain.

What is proof of stake?

Proof of Stake Definition - Proof of stake is a consensus system that has been used extensively by crypto owners to validate transactions.

Crypto owners employ this system to stake coins, verify and add new blocks of transactions to the blockchain.

A consensus mechanism is a technique for verifying and securing entries in a distributed database — the consensus that provides security for the database in the case of crypto is the blockchain.

This approach is a complement to proof of work, the original consensus mechanism for cryptocurrencies. Because proof of stake is far more energy-efficient, it has grown in popularity as the focus has shifted to the environmental impact of crypto mining.

Proof of stake decreases the amount of computing work required to validate blocks and transactions that ensure the security of the blockchain and the cryptocurrency — altering the way that blocks are validated by employing the machines of currency owners.

Owners provide their currencies as collateral in exchange for the opportunity to validate blocks. Coin owners who stake their coins are referred to as "validators".

After that, validators are chosen at random to "mine," or validate, the block. Rather than relying on a competition-based method like proof of work, proof of stake randomly assigns who gets to "mine."

A coin owner must "stake" a certain number of coins to become a validator.

Ethereum, for example, requires a stake of 32 ETH before a person may become a validator. For a block to be completed and closed, a specific number of validators must verify that the block is accurate.

Proof of stake vs proof of work: what’s the difference?

Proof of work and proof of stake both allow a distributed network of participants to reach a consensus on which new block of transactions can be added to the blockchain.

However, their methods of achieving this are different.

Proof of work makes it possible for network participants to agree on which block to add by making them expend a considerable amount of computing resources and energy on producing new valid blocks.

To use proof of stake, network participants must stake crypto as collateral in support of the new block they feel should be added to the chain.

Drawbacks of proof of stake versus proof of work:

  • In terms of security, proof of stake is not as well established as proof of work and is not as tamper-proof.
  • Validators that have large holdings can exert a strong influence on transaction verification.
  • Some proof of stake cryptocurrencies mandate owners to lock up their coins for a certain period.
  • Proof of work has not been properly validated and tested at scale. It can also tend towards centralization.

FAQs

What is proof of stake?

Proof of stake is a consensus technique/mechanism used in crypto to process and validate transactions to create new blocks on a blockchain. A consensus mechanism is a technique for verifying and securing entries in a distributed database.

Which crypto uses proof of stake?

The following prominent cryptocurrencies use proof of stake:

  • Cardano is a blockchain platform built on scientific research that places a premium on security and sustainability.
  • Tezos is an adaptable programmable blockchain with an on-chain upgrading mechanism.
  • Algorand utilizes a two-tier blockchain topology to achieve 1,000 transactions per second processing rates.

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