What is proof of stake? And how is it different from proof of work?


What is proof of stake? And how is it different from proof of work?

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Both systems are how new blocks are added to the blockchain.

In proof of work systems, all of the miners are given the same goal – brute-force to solve a math equation as quickly as you can. The first one to correctly solve it gets the reward – typically a port of the transaction fees associated with the new block and usually a new coin for their trouble.

These systems are falling out of favor because as the calculations get more and more difficult and more and more miners enter the fray, the energy costs associated with mining skyrocket.

In proof of stake systems, anyone with a minimum number of coins may ‘stake’ those coins – offer coins as collateral in exchange for the chance to validate the next block. For every block, a selection of random stakers are asked to perform the validation calculations for the next block on the chain. If they have a consensus, the new block is added and the validators get a portion of the transaction fees for their trouble.

Proof of stake systems are gaining favor because the reward ownership of coin rather than raw computational power. The calculations don’t need to get progressively harder – leading to skyrocketing power demands – because validation isn’t based on computational power but rather ownership of coin.

With proof of stake, you don’t have to perform complex calculations anymore to find a specific valie, but you only need to validate blocks.

Instead of providing compute power for complex calculations, you lock (stake) a significant part of the crypto you want to be a validator for (32ETH for a validator node on ETH for example).

Your node needs to provide a consensus value (the same value as all other nodes) or your staked coin can be lost, this is the actual stake which forces to provide correct values.

Nodes are chosen randomly to validate blocks, and you get rewarded for that. Your node only needs to validate (or not) a transaction.

If you validate malicious blocks, you lose your stake. You may also lose your stake if you fail to validate a block in the allowed time (if your node goes offline for example).

This mechanism ensures the stakes are motivating enough to validate blocks truthfully.