The proof-of-stake system (PoS) is an alternative to the proof-of-work (PoW) system, which is currently used by cryptocurrencies like Bitcoin and Ethereum.
Proof of stake is a type of algorithm for reaching consensus in a distributed computing environment. PoS systems are designed to provide better security than PoW systems, because they don’t use heavy computations to reach consensus. Proof-of-stake systems rely on random sampling and rewards those who have the most stake.
Proof of stake relies on validators to create new blocks and validate transactions. They are chosen by the system at random and their chances of being chosen increase as they continue to create blocks and validate transactions. This system reduces the risk of a 51% attack because it relies on a distributed network of nodes instead of just one node like in proof-of-work systems.
The idea of proof-of-stake is to solve the problem of proof-of-work associated with high electricity consumption. Instead of participants’ computing power, it is the amount of cryptocurrency in their account that counts. So, instead of using a large amount of electric power to solve the PoW problem, a PoS participant has a limited percentage of transactions that can be verified. The limit corresponds to the amount of cryptocurrency in a participant’s account.
Proof of Stake is used when a miner blocks a predetermined number of coins to verify a block of transactions. Cryptographic computing in PoS is much easier for PC. You need to prove that you own a certain percentage of all coins available in that currency. For example, if someone owns 5% of all Solana (SOL), he will be able to mine 5% of all transactions through Solana.
Some believe PoS will be a fairer system than PoW because technically anyone can become a miner. PoS offers a linear scale regarding the percentage of blocks a miner can validate based on that person’s share of the cryptocurrency. This means that the person who has ten times as many coins (e.g., one has $10,000 and another has $1,000) can only create 10 times as many blocks as the other.
Some believe that a move to PoS could encourage greater global participation, as well as more decentralization of capacity. By taking mining out of the hands of a few GPU farms, there would be an even distribution of mining work across the entire network, leading to a more democratized system.