What is crypto proof of stake ?
You probably already have heard about the concept of proof of stake, adopted by Ethereum in 2022, in opposition to proof of work, used by Bitcoin.
In the world of cryptocurrency, Proof-of-Stake (PoS) is a popular consensus algorithm that is used by some blockchain networks to validate transactions and add them to the blockchain. PoS is an alternative to Proof-of-Work (PoW), which is the consensus algorithm used by the Bitcoin network. In this blog post, we will explore the technical aspects of PoS and how it differs from PoW.
In a PoS system, the validation of transactions is based on the “stake” or amount of cryptocurrency held by a particular user or node. This means that users who want to participate in the validation process must hold a certain amount of the cryptocurrency in a wallet and use it as collateral. The more cryptocurrency a user stakes, the higher their chances of being selected to validate a transaction and earn a reward.
In this blog post, we will delve into the technical details of PoS, but explained as simply as i can.
So, What is crypto proof of stake ?
Definition of proof of stake
To make it easier to understand what is crypto proof of stake , we need to start from the roots of Blockchains : Decentralization. Because there isn’t any form of centralized organisation for any Blockchain, the network has to be stored and maintained somewhere by some people.
The blockchain is stored on nodes, that contains every piece of the blockchain code, and all the transactions that are made. If you have never heard of nodes, please refer to this article to understand this concept :
What is a node on a Blockchain ?
Then, the people who runs some of these nodes are called the validators. They run the computer that maintains these nodes. In order to participate in the validation process, they also have to “stake coins“, in order to proove their good intentions.
This is what is called the proof of stake.
Process of stacking cryptocurrencies as a collateral
Crypto staking is a process by which holders of certain types of cryptocurrency can earn rewards for participating in the validation of transactions on a blockchain network. In order to stake their cryptocurrency, users must first hold a certain amount of the cryptocurrency in a wallet that is capable of staking.
When a user stakes their cryptocurrency, they are essentially “locking” their coins in specific wallets and using them as collateral. From this point, two cases can occur :
- If they are properly doing their job, they earn rewards : Users who participate in staking can earn rewards in the form of additional cryptocurrency. These rewards are distributed to validators in proportion to the amount of cryptocurrency they have staked. The more you stake, the more you validate transaction, the more you earn passive income.
- If the job is not properly done, or if someone tries to cheat : Slashing : In some staking systems, validators who fail to properly perform their duties or who engage in malicious behavior may be “slashed,” or penalized by having a portion of their staked cryptocurrency taken away.
What is important to understand here : The mechanism used here is simple yet extremely powerful. Nodes validators have more to earn by following the rules, than by trying to steal / not respecting the rules. Consequently, everyone plays by the rules, and the blockchains works well, safely.
Can I stake crypto without running a node ?
For many coins, you don’t have to run nodes in order to participate in proof of stake. What you can do is delegate your coins to validators, which will stake your coins for you.
They will run nodes that generate passive income through staking benefits. After that, you will earn your part, depending on the amount you staked.
Because running a node has a cost for the validators, they often ask for a percentage of the revenues when staking on their pool.
Make sure to check how much they ask before choosing a validator. Most of the time, they ask between 1 to 15 %.
You can check the different validators on this adress :
Make sure to choose a provider with a good rating, provider by the platform, to avoid scams.
Conslusion on Proof of Stake
PoS has several advantages over Proof-of-Work (PoW), including reduced energy consumption and faster transaction processing times. However, it also has some potential drawbacks, such as the risk of centralization if a small group of users holds a large portion of the staked cryptocurrency.
Overall, PoS is a powerful and innovative technology that has the potential to revolutionize the way transactions are validated and added to the blockchain. As the cryptocurrency industry continues to evolve, it will be interesting to see how PoS and other consensus algorithms are used and adapted to meet the needs of the market.
Read more about crypto :
What is DCA in crypto investment ?
What is the most secure crypto wallet ?