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What is proof of stake (PoS)?​

Proof of Stake (PoS) is a consensus mechanism used in blockchain technology to validate transactions and create new blocks.
It is the alternative to Proof of Work (PoW), which is used by Bitcoin.
Here is a detailed breakdown of what PoS is, how it works, and why it is significant:

1. What is Proof of Stake (PoS)?

In simple terms, PoS aims to achieve agreement (consensus) across a decentralized network about the history of transactions, ensuring that everyone agrees on the same, unchangeable ledger.
Instead of relying on computational power and demanding "work," PoS relies on economic stake. Validators are chosen based on the amount of cryptocurrency they are willing to "stake" (lock up) as collateral.

Key Concept: The "Stake"
  • Validators: These are users who replace miners in PoW systems. They run specialized software (nodes).
  • Staking: To become a validator, a user must deposit and lock up a specific amount of the network's native cryptocurrency (the "stake") into a smart contract. For example, on the Ethereum network, a validator must stake 32 ETH.
  • Collateral: This stake serves as collateral. It gives the validator an economic incentive to behave honestly, because if they try to cheat, steal, or fail to follow the rules, their stake can be slashed (taken away) by the protocol.

2. How PoS Works

The process involves several steps to select validators, propose blocks, and finalize consensus:

A. Validator Selection
  • Unlike PoW, where miners compete in a global guessing game, in PoS, the protocol randomly selects a validator to propose the next block.
  • The probability of being selected is proportional to the size of their stake. If Validator A stakes 10% of the total staked amount, they have roughly a 10% chance of being chosen to propose the next block.

B. Block Proposal and Attestation
  1. Proposal: The chosen validator gathers a collection of recent, unconfirmed transactions and packages them into a new block.
  2. Attestation (Voting): After the block is proposed, a committee of other validators (selected randomly) reviews and "votes" on the proposed block to confirm its validity (i.e., making sure the transactions are valid and no rules were broken). This vote is called an "attestation."
  3. Finality: Once enough attestations (usually two-thirds majority) are collected and confirmed, the block is finalized and added to the blockchain, becoming an irreversible part of the ledger.

C. Rewards and Penalties
  • Rewards: Validators who successfully propose and attest to valid blocks receive a reward, paid in the network's native cryptocurrency (the validation reward).
  • Slashing (Penalties): If a validator attempts to double-spend (propose conflicting transactions) or goes offline and fails to attest when required, a portion or all of their staked collateral is automatically seized by the protocol. This mechanism is crucial for network security.

3. Advantages of Proof of Stake

PoS has become the preferred consensus mechanism for modern blockchains (including Ethereum after its Merge transition) primarily due to three major advantages:

1. Energy Efficiency (The Primary Advantage)
  • PoS uses dramatically less energy than PoW. Validators only need to run nodes and verify transactions, which requires minimal computational power compared to PoW's intensive cryptographic puzzle-solving.
  • Example: When Ethereum (ETH) switched from PoW to PoS, its energy consumption dropped by over 99.9%.

2. Improved Decentralization and Accessibility
  • In PoW, wealth centralizes around those who can afford massive mining farms and specialized hardware (ASICs).
  • In PoS, participation (staking) is more accessible. While a minimum stake is often required (like 32 ETH), staking pools allow smaller holders to combine their funds, increasing their chances of participating and earning rewards.

​3. Stronger Security (Economic Security)
  • To successfully launch a 51% attack (taking over the network to rewrite history), an attacker would need to control 51% of the total staked cryptocurrency.
  • Such an attack is prohibitively expensive (requiring billions of dollars). Furthermore, if an attacker were to acquire and stake 51%, the moment they began to attack, the network would immediately slash their entire stake, causing them to lose billions of dollars instantly. This economic deterrent is extremely powerful.

4. Examples of Blockchains Using PoS
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  • Ethereum (ETH): Switched from PoW to PoS in September 2022 (The Merge).
  • Solana (SOL)
  • Cardano (ADA)
  • Polkadot (DOT)
  • Avalanche (AVAX)
  • Tezos (XTZ)