Proof of Stake (PoS) is one of the major consensus mechanisms by which a cryptocurrency network reaches agreement on which transactions are valid.
In PoS-based cryptocurrencies, the creator of each new block is chosen in a deterministic way, depending on their stake in the currency: the more coin units a miner holds, the greater their chance of creating a new block.
This system contrasts with Proof of Work (PoW), where block creators are chosen in a pseudo-random way, and their probability of creating a new block depends on how much computational power they are expending.
The key advantage of PoS over PoW is that it is far more energy efficient: because there is no need for miners to constantly expend large amounts of electricity in order to solve cryptographic puzzles, the overall electricity consumption of a PoS-based cryptocurrency is much lower.
Another advantage of PoS is that it is more secure against 51% attacks: in order to successfully mount an attack, a would-be attacker would need to control more than half of all the currency units in circulation. This is much harder to do than amassing 51% of the computational power in a PoW-based network.
The disadvantages of PoS include the fact that it can be vulnerable to so-called ‘stake grinding’ attacks, and that it can lead to centralization if a small number of people end up controlling a large proportion of the currency units.
Overall, PoS is a more efficient and secure consensus mechanism than PoW, and is thus well-suited to cryptocurrency networks that need to process a large number of transactions quickly and securely.
What is the Difference Between PoW and PoS?
Proof of Work (PoW) and Proof of Stake (PoS) are two different algorithms used by cryptocurrency networks to achieve consensus on which transactions are valid.
PoW is the original consensus algorithm used by Bitcoin, and involves miners competing to solve cryptographic puzzles in order to add new blocks to the blockchain. The probability of a miner creating a new block depends on how much computational power they are expending.
PoS was first proposed as an alternative to PoW in 2012, and involves users staking their currency units in order to validate transactions. The more units a user stakes, the greater their chance of creating a new block.
Both algorithms have their own advantages and disadvantages. PoW is more secure against 51% attacks, but is less energy efficient. PoS is more energy efficient, but can be vulnerable to stake grinding attacks.
In general, PoS is seen as a more advanced consensus algorithm than PoW, and is better suited to cryptocurrency networks that need to process a large number of transactions quickly and securely.