Proof of stake

While reading announcements about eth2.0, as a blockchain enthusiast or investor, you probably heard that they are changing consensus model from proof of work to proof of stake.

What actually is meant beyond the proof of stake? How it works? What are the pros and cons of this solution?

All answers for this questions and more, you will find in this material.

Agenda:

• intro,
• What is proof of stake (PoS)?
• How it works?
• Why to even freeze holdings and stake it?
• Pros,
• Cons,
• Blockchains which use PoS,
• Perspectives.

What is PoS?

Proof of Stake differs from proof of work in mostly validating new block. In PoW it is needed to make some work. However, in PoS chain is secured by “transaction validators”, who stake holdings.

How it works?

Staking holdings is based on depositing of coins by user in concrete blockchain. Then approving transaction requires of selecting the stake (it is proceeded by probability).

The greatest chances have the user which holds coins in the longest period of time and have the biggest deposit.

Why to even freeze holdings and staking it?

Staking crypto can be extremely profitable, in some cases, it offers earning 10% or even 20% per year. It can be turned into a really huge passive income.

However, there can be some projects which can fall apart and all the staked funds with that. There are plenty of examples, considering correct project of staking should be preceded by careful researches.

Pros:

• energy efficient,
• provides fast and inexpensive transaction processing,
• doesn’t require special equipment to participate, unlikely to PoW.
• Speed ups validating process.

Cons:

• Not as proven as proof of work in security term,
• Validators with huge holdings can have a significant impact on validating,
• Some proof of stake cryptocurrencies requires to deposit holdings for minimum period of time.

Blockchains which uses PoS:

• Polkadot,
• Avalanche,
• Cardano,
• Ethereum 2.0 (when it will be ready)

Perspectives:

POS gives huge opportunity to lower energy consumption needed for a establishment of an ecosystem. It is a big advance over proof of work. However, there is a big disadvantage.

Potentially, person who stakes 51% of coins supply, will have a control over blockchain and validation of transactions. It is a hypothetical threat, because it is nearly impossible to have such a big supply as one institution or a person.