proof of stake

Definitions

1. Proof of Stake (PoS) is a consensus mechanism used by blockchain networks to validate transactions and create new blocks, where validators are chosen based on the amount of cryptocurrency they have staked (locked up as collateral) rather than on computational power as in Proof of Work. Validators are selected to propose and attest to new blocks proportionally to their stake, with the economic incentive being that dishonest validators risk losing their staked tokens (slashing). PoS consumes dramatically less energy than Proof of Work, which requires miners to solve computationally intensive puzzles. Ethereum's transition from Proof of Work to Proof of Stake in September 2022 (known as The Merge) reduced its energy consumption by approximately 99.95%. Other PoS networks include Cardano, Solana, Polkadot, and Avalanche. Variants include Delegated Proof of Stake (DPoS), where token holders vote for validators, and Liquid Proof of Stake. Criticisms of PoS include concerns about wealth concentration (the rich get richer through staking rewards) and the relatively untested long-term security compared to Bitcoin's Proof of Work.

   In plain English: Instead of wasting electricity to validate transactions, participants put up their own money as a security deposit. Cheat, and you lose your deposit.

   Example: After Ethereum's merge to proof of stake, its energy consumption dropped by over 99%, though the debate about centralization risks continued.

Related Terms

• mining (crypto)
• proof of work
• consensus mechanism