Dec 17th 2022

Proof of Stake is a type of consensus mechanism used by blockchains to verify transactions and add them to the existing blockchain. A consensus mechanism allows a blockchain to be the single source of truth despite not having a single central authority.

A blockchain maintains its integrity by publishing all the transactions in the form of a block. Any further transaction that contradicts an already published transaction is reverted. Proof of Stake allows a way for the blocks to be published. It is an important mechanism that secures the blockchain from malicious activities like double-spending.

Ethereum, the second largest cryptocurrency by market cap, will soon use Proof of Stake as its consensus mechanism after the Ethereum Merge. As of right now, Ethereum uses Proof of Work, another popular consensus mechanism. However, one of the biggest criticisms of Proof of Work is its energy consumption. Bitcoin, which uses Proof of Work, has an annual energy consumption of about 150 terawatt-hours, more than that of Argentina. Its energy consumption is a result of the competition between miners, who spend an extensive amount of energy to be the first one to guess a random number and earn the right to publish a block.

Proof of Stake solves the energy consumption problem of PoW by eliminating the competition. PoS replaces miners with validators, who all stake a pre-determined amount of currency to get a chance to publish a block. For Ethereum, the amount is set at 32 ETH. The validators are randomly selected to publish a block. The block is only published when a committee of other validators verifies the proposed block.

In case of any dishonest behavior from the validator, their deposited stake is slashed as a punishment.