Proof of stake is the best alternative to Bitcoin proof of work, but how does it really work?
When it comes to decentralized ledger technology, there are endless applications, including blockchain. One of the key ways to define a blockchain is through its consensus mechanism, the method used to validate transactions made on the public ledger.
If you’ve ever tried to learn how blockchain consensus works, you may have come across the term “proof of stake.” Proof of stake is a simple concept to understand, but it is one of the most important concepts in the blockchain. So what is proof of stake and why is it important?
How does proof-of-stake (PoS) work?
Proof-of-stake is a consensus algorithm that enables secure and reliable verification of transactions on a blockchain through investing. It works by allowing users to “invest” their coins to verify blocks of transactions. In proof-of-stake, blocks are created by “validators” and the more coins someone has, the more likely they are to be chosen as the validator.
The more coins you bet, the greater your chances of checking a block and earning rewards. This system creates an incentive for users to keep their coins and helps protect the blockchain against fraudulent activity.
Explanation of proof of stake vs. proof of work (PoW)
Proof of stake is an alternative to proof-of-work, the consensus mechanism used by Bitcoin and many other cryptocurrencies. Proof of work is more computationally intensive and requires crypto miners to solve complex mathematical problems to verify blocks of transactions.
The key difference between the two mechanisms is in block verification. In the proof of stake, the block validator is randomly chosen from those with staked funds. With proof-of-work, miners compete to mine the next block.
For this reason, proof-of-work leads to energy waste as miners compete to solve these problems. Proof of stake is considered a more sustainable and environmentally friendly alternative to proof of work.
Pros and Cons of Proof of Stake
While proof-of-work is the most common consensus algorithm, proof-of-stake is gaining popularity due to its many advantages. Not only is it more efficient, but it can lead to lower transaction fees. Finally, proof-of-stake also helps avoid the centralization of power, which is a major concern with proof-of-work.