What is Proof of Stake in Blockchain?

The proof of stake consensus mechanism is considered a better alternative to the proof of work mechanism due to its energy efficiency and environmental friendliness, thus, several blockchains now adopt it as their preferred means of reaching consensus.

proof-of-stake-consensus-mechanism

TL;DR

  • Proof of stake requires users to stake a set number of coins to become validators on a blockchain
  • Proof of stake consumes less energy, therefore, it is considered to be more efficient
  • Ethereum, the largest DeFi blockchain, recently made the switch to proof of stake

What is Proof of Stake?

The proof of stake is a blockchain consensus mechanism where users can become network validators by staking a set number of tokens as described by a blockchain. Upon staking, the user becomes a validator and is granted the ability to verify transactions and add new blocks to the blockchain network.

Despite the relative ease of becoming a validator, getting assigned the task to validate transactions and add new blocks is harder for small participants. This is because the chances of getting selected for this process are largely determined by the percentage of stake that a validator holds in the staking pool. For example, if a validator’s stake only accounts for 0.002% of the overall stake on a network, the chances of getting selected are no more than 0.002%.

For this reason, it is quite common for smallholders to form a pool to increase their chances. The pool then splits network rewards based on the percentage that each validator contributes. It is also a given that the pool takes a percentage of the total reward.

Energy Efficiency

Compared to the proof of work consensus mechanism, proof of stake is largely considered to be energy efficient. The proof of work consensus mechanism typically requires miners to install large mining equipment that consumes huge energy, thus putting pressure on energy resources which impacts the environment.

Proof of stake on the other hand only requires validators to run node applications on their devices. They effectively become validating nodes by staking coins and validating transactions and adding new blocks when necessary.

Ethereum Proof of Stake

Ethereum is the first blockchain to enable DeFi and still maintains its position as the largest DeFi blockchain today. However, the network only recently made the switch to proof of stake following years of preparation. The switch The Merge finally took place in September 2022.

By making the switch, the largest DeFi blockchain is now eco-friendly, thus, creating an added incentive for institutional adoption on a global scale.

Conclusion

Proof of stake is the most widely adopted consensus mechanism among blockchains. This is especially interesting because anyone can become a participant while operating in an environmentally-friendly manner.

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