What does it mean by the proof of stake?

Proof of stake (PoS) is a method cryptocurrencies, like Bitcoin or Ethereum, confirm transactions and build the blockchain. Instead of using energy-intensive mining like in traditional methods (Proof-of-Work), PoS relies on validators who hold and “stake” a certain amount of the cryptocurrency. These validators are chosen to create new blocks and validate transactions based on the amount they hold and are willing to “stake.” This approach is more energy-efficient and allows those with more cryptocurrency to have a larger role in the network’s operations.

Validators are like participants who help keep the cryptocurrency network running smoothly. They do this by confirming transactions and adding them to the blockchain. To become a validator, individuals need to hold a certain amount of the cryptocurrency, which they’re willing to “stake” as collateral.

Staking means locking up a specific amount of the cryptocurrency as a security deposit. This shows that the validator has a vested interest in the network’s well-being because they have something valuable at stake. The more cryptocurrency a validator stakes, the more likely they are to be chosen to create new blocks and validate transactions.

Validators are selected based on a combination of factors, including the amount they’ve staked and sometimes randomly, to ensure fairness. This approach is more energy-efficient compared to traditional mining methods used in Proof-of-Work systems. Additionally, it gives those who hold more cryptocurrency a greater influence in the network’s decision-making and operation.

Why is the proof of stake important?

PoS is a consensus mechanism to confirm and approve new transactions in cryptocurrencies. Now, imagine a big notebook that everyone in the game writes in. This notebook is like the blockchain. Since there’s no boss to oversee everything, validators use “proof of stake” to make sure the information written in the notebook is correct.

What’s the importance of proof of stake?

To prevent cheating, proof-of-stake systems ask traders to put some of their cryptocurrency as security, which is locked in a deposit. If a trader tries to add a fake transaction to the blockchain, they might lose a part of their security.

How did the proof of stake come about?

Sunny King, wrote down the idea for this new rule in a paper with another friend named Scott Nadal back in 2012. They wanted to help fix a big problem in another game called Bitcoin, where too much energy was being used. Then, in 2013, Sunny King created a new game called Peercoin. It was the first game to use this “Proof of Stake” rule, along with the older rule called “Proof of Work.”

After that, more friends in the gaming world started using only the “Proof of Stake” rule without the old one. NXT was one of the first to do this in November 2013, and Cardano and Algorand followed. Another game called Blackcoin, made by a friend named Pavel Vasin (also known as Rat4), joined in too.

Rat4 wanted to make a game called Blackcoin, and he wanted to make it even better. He decided to remove a part of the old rule called “coinage” and also the old rule “Proof of Work.” This made the game more fair and less energy-hungry.

However, even though all these new rules were cool, by 2017, not many people were using games with “Proof of Stake” as much as the older games with the “Proof of Work” rule.

 PoS wasn’t as popular as PoW until around 2017.

What’s the risk of proof of stake?

Validators—those who support the bitcoin system’s operation risk losing the cryptocurrency they invested if they start acting dishonestly. This motivates people to follow the rules and maintain everything’s security and fairness.

key points

• Proof-of-stake (PoS) is a method cryptocurrencies confirm transactions and build the blockchain.
• The main importance of the Proof of Stake is to prevent cheating.
• Validators risk losing the cryptocurrency they invested if they start acting dishonestly.