Proof of StakeProof-of-Stake is focused on the ownership of a coin. Coin holders can mine or validate block transactions based on the amount of coins owned by the individual. With Proof-of-Stake, the more coin an individual owns the more power the individual has on the blockchain.
What Is Proof of Stake (PoS)?
Proof-of-Stake is the method used to generate new cryptocurrency tokens. This concept focuses on the ownership of a coin versus the “Proof-of-Mining” or “Proof-of-Work” (PoW). Bitcoin is a Proof-of-Work token. Staking tokens are Proof-of Stake (PoS). Think of this as putting money in a bank account and earning interest. The bank uses your money to make more money and they in turn give you a miniscule percentage of interest. This is the same principle as Staking. With Proof-of-Stake, the more coin an individual owns the more power the individual has on the network i.e. blockchain.
Overview of Proof-of-Stake
The concept of proof-of-stake take was created as an alternative to proof-of-work (PoW). PoS seeks to address issues related to PoW by attributing “mining” power to the amount of coins held by a coinholder. This significantly reduces the amount of computer power, and electricy needed to generate new tokens.
A PoS miner is limited to mining a percentage of transactions that is reflective of the total ownership of the coin. For instance, an individual who owns a total of 1% of a PoS cryptocurrency will only ever be able to mine 1% of total blocks in the network.
Staking – Benefit from Holding
Coins that utilize PoS allow coin holders to ‘stake’ their coins. This process puts coins the individual owns and contributes them to work on the blockchain. Coins contributed to staking will reward the coin holder with a percentage-based return dependent on the coin staked. For more advanced users, setting up a node and becoming a blockchain validator for these cryptocurrencies is a further method to earn coin-based rewards.