What is Proof-of-Stake?

In its simplest form, Proof-of-Stake (PoS) is a consensus mechanism that allows a network of computers to agree on the order of transactions. PoS is an alternative to Proof-of-Work (PoW), which is the most common consensus mechanism (click here to learn more about PoW).

PoS was first proposed in 2011 by Scott Nadal and Sunny King as a way to address some of the issues with PoW, such as high energy consumption and centralization. PoS does not require mining, so it is more environmentally friendly than PoW. In addition, PoS is less likely to result in centralization because anyone can become a validator or node on the network.

In fact, The proof-of-stake model allows owners of a cryptocurrency to stake coins and create their own validator nodes. Your coins are locked up while you stake them.

When a block of transactions is ready to be processed, the proof of stake protocol will select a validator node to examine the block. The validator ensures the accuracy and adds the block to the blockchain and gets rewarded for it. On the other hand,, if a validator intends to add an incorrect block, this will have as a result the loss of some of their stake holdings.

Cryptocurrencies and investors that use proof-of-stake benefit greatly from it. In fact, cryptocurrencies that use proof of stake are able to process transactions quickly and at a low cost, which is key for scalability. Investors can stake their crypto to earn rewards, providing a form of passive income.


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