Proof of Stake - CryptoKnowhow

Proof of Stake (PoS) consensus

Proof of Stake is a consensus mechanism in blockchain networks where the creation and validation of new blocks are determined by the participants’ ownership or stake of the cryptocurrency. Validators are chosen to create new blocks based on the amount of cryptocurrency they hold and are willing to “stake” as collateral.

The Proof of Stake design aims to achieve a more energy-efficient and environmentally friendly approach compared to Proof of Work (PoW). This consensus mitigates the need for resource-intensive mining processes, as validators are selected based on their stake. Therefore, the network’s security increases and the participants’ financial incentive is there due to staking rewards. In other words, PoS mechanisms have a reduced environmental impact compared to PoW consensus.

Proof of Stake introduced Slashing

PoS introduced the concept of slashing, a mechanism to penalize validators for malicious behavior or downtime. When a validator is acting against the networks’ best interest, a portion of their stakes assets can be confiscated. Malicious intents could for example be attempting to double-sign transactions or being inactive during the validation period.

A financial penalty helps to keep participants honest and to maintain the integrity of the blockchain. PoS often includes a system of delegation, where smaller stakeholders can delegate their coins to a trusted validator, allowing them to participate in the consensus process indirectly and earn rewards. Resulting in a democratized validation process, making it accessible to a broader range of participants and further enhancing the network’s decentralization.