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What is Proof-of-Stake?

The exciting world of cryptocurrencies is becoming more mainstream, and many people new to the cryptocurrency world are jumping on the bandwagon. The uninitiated have a steep learning curve to contend with to catch up with how everything works in the cryptocurrency industry. It involves learning a lot of concepts that might be foreign to you and new phrases that you probably have not heard before.

One of the questions people new to the cryptocurrency world often ask is “What is proof-of-stake?”

Today’s post will be your guide to shed some light on the cryptocurrency validation method called proof-of-stake. It will help you learn the basics of the proof-of-stake protocol, how it works, and identify a few of the major cryptocurrencies that use it.

Understanding what the proof-of-stake protocol is and how it works might help you make more well-informed decisions when trading or investing in cryptocurrencies.

What Is Proof-Of-Stake?

Proof-of-stake is a cryptocurrency consensus protocol that is used to process transactions and create new blocks of data on a blockchain network. Consensus protocols are a method used to validate transactions on a distributed ledger, allowing new transactions to be added to the network in a secure manner without the need for regulatory or central authorities to validate transactions.

Proof-of-stake is used to maintain the integrity of cryptocurrency blockchain networks, preventing double-spending and securing the entire network. In the proof-of-stake protocol, the miners are cryptocurrency owners who stake their coins to aid the validation process. Staking their cryptocurrency holdings gives the validators the right to check new blocks of transactions being recorded on the blockchain and add them to the network after validation.

Proof-of-stake was developed as an alternative to the proof-of-work protocol, the first consensus mechanism designed to validate transactions. Proof-of-stake is much more energy-efficient and has become a more popular protocol.

How Does Proof-Of-Stake Work?

With proof-of-stake, cryptocurrency miners would compete with each other to complete transactions to add new blocks to the blockchain network. The approach to mining cryptocurrency is different when using the proof-of-stake model. In proof-of-stake, the owners of a cryptocurrency stake the cryptocurrency’s coins they own to create their own validating node on the blockchain network.

Staking is essentially pledging your coins to be used to verify transactions. For the time you have staked a certain amount of your cryptocurrency holdings for proof-of-stake, you will not be able to use the staked crypto.

Whenever there is a new block of transactions that is ready to be processed, the proof-of-stake protocol of the blockchain network will select one of the validator nodes and task them with reviewing the block of new data. The validator will perform mathematical equations to determine whether the transactions in the new block are valid. If the transactions are accurate, they will add the block of data to the blockchain network. Cryptocurrency users who stake their crypto holdings to validate transactions are rewarded cryptocurrency for successfully validating the transaction.

It is important to note that if you are a validator selected by the proof-of-stake protocol to validate a block of data and you propose adding inaccurate data to the blockchain, it could result in you losing some of your staked holdings.

Mining Power In Proof-Of-Stake

The proof-of-work protocol proved unfair for individual miners because they could not compete with cryptocurrency mining pools and large companies that invested in a substantial amount of specialized mining hardware. The disparity between the mining power of a large company and an individual miner allowed a few major entities to reap more benefits.

Mining power in the proof-of-stake protocol does not come through specialized hardware. Rather, it depends on the number of coins a validator is willing to stake. Validators who stake a greater amount of coins are more likely to be selected by the proof-of-stake protocol to validate new transactions.

Each proof-of-stake protocol works differently in how it selects validators for new blocks of data. The selection process has an element of randomness to it, but it may also depend on various other factors. It is possible for validators who have been staking their crypto holdings for a longer time to be more likely to be tasked with validating more transactions.

Major Cryptocurrencies That Use Proof-Of-Stake

The energy-efficient and faster method of validating transactions on a blockchain network facilitated by the proof-of-stake protocol have made it an increasingly popular validation method for cryptocurrencies. Most of the new cryptocurrencies today use the proof-of-work protocol, and several blockchain networks that relied on the proof-of-work protocol are now shifting to proof-of-stake. A few of the major cryptocurrencies using proof-of-stake include:

  • Solana
  • Cardano
  • Avalanche
  • BNB
  • Cosmos

Ethereum is one of the world’s largest cryptocurrencies that rely on the proof-of-work validation method. However, increasing concerns about the energy-intensive nature of validating transactions using proof-of-work have resulted in changes being enacted on the blockchain network. Ethereum still operates on the proof-of-work protocol at the time of writing, but it is slated to shift to the proof-of-stake model soon.

Wrapping It Up

Cryptocurrency mining
A conceptual visualization of crypto mining showing golden Bitcoin tokens in the dirt being slowly uncovered.

We will leave you with a few key takeaways to wrap up this guide on proof-of-stake:

  • Proof-of-stake is a validation protocol on blockchain networks that allows cryptocurrency owners to validate blocks of transactions based on the number of coins a validator stakes.
  • Proof-of-stake was created as a viable alternative to the more energy-intensive and time-taking proof-of-work protocol.
  • Proof-of-stake is widely regarded as a more secure validation method because it disincentivizes potential attacks on blockchain networks.

The introduction of the proof-of-stake method has revolutionized the cryptocurrency industry by addressing a few of the major problems faced due to the original proof-of-work validation protocol. This method is far less energy-intensive, takes a lot less time to complete transactions on a blockchain network, and the rewards are more profitable for miners due to lower energy costs.

Did you find this post on Proof-of-Stake informative? We have a lot more in store for you to help you learn and become updated on everything related to the cryptocurrency world. Keep checking out our blog for more posts on everything about cryptocurrencies and blockchain technology.

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