What is Proof of Stake?

The Proof of Stake (PoS) protocol dictates that the amount of coins a person holds correlates to the mining weight that they possess in validating block transactions and minting new coins. Therefore, the more coins owned by a user, the more mining power they have.

Proof of Stake (PoS) was invented as an alternative to Proof of Work (PoW), which is the original consensus algorithm in blockchain technology, used to confirm transactions and mint new coins. Proof of Work (PoW) requires enormous amounts of energy, with miners needing to sell their coins to ultimately foot the bill; Proof of Stake (PoS) gives mining power based on the percentage of coins held by a miner.

Proof of Stake (PoS) is seen as less risky in terms of the potential for miners to attack the network, as it structures compensation in a way that makes an attack less advantageous for the miner. Bitcoin, the largest cryptocurrency, runs on Proof of Work rather than Proof of Stake.

A growing number of the most popular cryptocurrencies use some variation of the PoS protocol. Here’s a partial list:

Cosmos (ATOM)

Cardano (ADA)

Polkadot (DOT)

Solana (SOL)

VeChain (VET)

Tezos (XTZ)

Proof of Stake (PoS) is a consensus mechanism used to validate crypto transactions and is meant to improve upon perceived flaws of Bitcoin’s Proof of Work (PoW). Some of the largest and fastest-growing coins have implemented this protocol.

Holders of PoS tokens can earn a “crypto dividend” on their holdings by staking their crypto and becoming network validators. Because this sometimes requires a substantial investment, exchanges have taken it upon themselves to make the process simpler and more affordable for the average user.

Understanding how PoS is key to understanding cryptocurrency and how it works. In general, it’s always better to know what you’re investing in before getting involved.