Proof-of-Stake

Pronunciation

[proof uhv steyk]

Analogy

Imagine a shareholder meeting where voting power is proportional to the number of shares owned. In Proof-of-Stake, individuals who 'stake' more of the network's currency have a higher chance of being chosen to validate transactions and create new blocks. If they try to cheat, they risk losing their staked shares, making them act honestly.

Definition

A mechanism where participants (validators) are chosen to create new blocks and validate transactions based on the number of coins they hold and are willing to 'stake' as collateral. Validators are rewarded for honest behavior and penalized (e.g., via ) for malicious actions.

Key Points Intro

is an alternative to that is generally more energy-efficient and can offer different and governance properties.

Key Points

Validators lock up a certain amount of cryptocurrency (their 'stake') to participate in consensus.

Block creators are typically chosen pseudo-randomly, with higher stakes increasing the chances of selection.

Validators earn transaction fees and sometimes block rewards for their participation.

Malicious behavior (e.g., double-signing, validating fraudulent transactions) can result in 'slashing,' where a portion of the validator's stake is forfeited.

Generally considered more energy-efficient than PoW.

Example

transitioned from to Proof-of-Stake (The Merge). Other blockchains include , , and . Validators on these networks their native tokens to participate in securing the network.

Technical Deep Dive

There are many variations of . Some involve random selection of validators based on size and age (e.g., 'coin age'). Others use more complex algorithms involving committees or voting rounds. Key challenges in design include preventing 'nothing-at-stake' problems (where validators have no disincentive to vote on multiple conflicting chains) and ensuring fair selection. mechanisms are crucial for security, creating an economic disincentive for attacks.

Security Warning

networks can be vulnerable to centralization if a few entities accumulate a large portion of the . The security also relies on well-designed economic incentives and conditions. Initial distribution can also impact the long-term of a network.

Related Terms

Delegated Proof-of-Stake

Nominated Proof-of-Stake

Blockchain & Cryptocurrency Glossary

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