Proof-of-stake is a consensus algorithm that requires a certain amount of computational power to validate transactions into the block chain. In other words, it’s like proof-of-work but with a different set of rules.
A proof-of-stake blockchain works by rewarding users who contribute to the validating process rather than miners. Instead of spending time and electricity running mining rigs, users with sufficient computing power are rewarded in cryptocurrency for their efforts.
As such, proof-of-stake blockchain can be thought of as a hybrid between proof-of-work and proof-of-vesting or delegated proof-of-stake. This means that it has some characteristics of both Proof-of-Work and Proof of Stake Blockchains.
There are many different types of PoS Blockchains, so here’s an introduction to what they are, how they work and their advantages and disadvantages.
What is Proof-of-Stake (PoS) Blockchain?
Simply put, a proof-of-stake (PoS) blockchain is a consensus mechanism that requires a certain amount of computational power to validate transactions into the blockchain network.
In other words, it’s like proof-of-work but with a different set of rules. Unlike proof-of-work blockchains, proof-of-stake blockchains do not require computers to simultaneously try to solve cryptographic hash functions or solve complex math problems.
Instead, they rely on computers to perform calculations in order to verify transaction data. The blockchain network validates transactions and records these actions in a public ledger.
This public ledger, which is called the “blockchain,” is mathematically proven “trustworthy” through a series of mathematical and logical steps.
How Does a PoS Blockchain Work?
Let’s assume you own a hotel and want to accept cryptocurrency as payment for your stay. You could either accept credit cards, cash or a combination of the three.
A hotel chain has a centralized database that contains a ledger of past stays and property details. When a guest stays at your hotel, they are matched against the database and their stays are added to the blockchain.
You collect the appropriate amount of cryptocurrency as a reimbursement for your stay. In this example, you have a centralized database where all details are kept in a single location.
However, in practice, the public ledger would be distributed across several computers, each with its own copy of the blockchain. Additionally, each computer would have its own private key, which could be used to access the ledger and verify the authenticity of each entry.
Advantages of a PoS Blockchain
Like all consensus mechanisms, PoS can be used for anything that requires consensus about the validity of data. This includes creating digital assets and controlling private or public blockchains.
Let’s assume that you own a coffee shop and want to accept cryptocurrency as payment for your coffee. You could either accept credit cards, cash or a combination of the three.
A coffee shop has a centralized database that contains a ledger of past purchases. When a customer pays with cryptocurrency, the cashier digitally signs the transaction and adds it to the blockchain.
You receive the appropriate amount of cryptocurrency as a reimbursement for your coffee shop service. In this example, you have a centralized database where all details are kept in a single location.
However, in practice, the public ledger would be distributed across several computers, each with its own copy of the blockchain. Additionally, each computer would have its own private key, which could be used to access the ledger and verify the authenticity of each entry.
Disadvantages of a PoS Blockchain
Similar to other consensus mechanisms, the main disadvantage of a PoS blockchain is that it requires a great deal of computing power to join the network and participate in the validation process.
This may require an expensive or high-powered computer. Additionally, as the network grows, it will become increasingly difficult for new participants to join. As a result, the network will become less trustworthy.
Final Words
The proof-of-stake blockchain is a consensus mechanism that requires a certain amount of computational power to validate transactions into the blockchain network.
This can either be hardware or a software-based solution. In order for the network to be valid, all participants must be on the same page. If not, the blockchain will lose its “trustworthy” status and the process will start over again.
A proof-of-stake blockchain can be used to create digital assets and grant voting rights. It can also be used to manage and distribute digital property such as land and businesses.
Essentially, a proof-of-stake blockchain can be used for anything that requires consensus about the validity of data.
This has been an introduction to proof-of-stake (PoS) blockchain technology, which is widely used in digital assets like cryptocurrencies. Now it’s time to get to know the technology better by using it in real-life scenarios.