In previous blog articles, we mentioned “proof of stake” (PoS) as a consensus mechanism recently adopted by Ethereum in “The Merge” that occurred in September last year. Many other blockchain platforms have either adopted it or switched to it as it gains in popularity.
👀 In this article, we’ll define what exactly proof of stake is, how the staking of tokens works, how it compares to other protocol consensus mechanisms such as proof of work (used by Bitcoin), as well as its energy saving benefits.
🌟 PROOF OF STAKE (PoS)
👉 Proof of stake is a more passive type of consensus mechanism used to validate cryptocurrency transactions and create new blocks in a blockchain.
Decentralized cryptocurrency networks need to make sure that transactions can’t be duplicated. This is accomplished without a central authority (like Visa or PayPal) in the middle using a “consensus mechanism”. This validation system allows all of the computers in a crypto network to agree about which transactions are legitimate, and in turn secures the blockchain.
❓ HOW DOES PoS WORK?
👛 Owners of a PoS cryptocurrency can stake, or lock up, their coins or tokens (often in a staking wallet) which gives them the right to check new blocks of transactions and add them to the blockchain. PoS powers Ethereum 2.0 (or ETH2, which is how the Ethereum network is referred to post-merge), Cardano (ADA), Tezos (XTZ) and many other newer generation cryptocurrencies.
🖧 In PoS blockchains, an individual or group is algorithmically chosen to verify transactions with computer hardware based on the proportion of tokens they have staked in the network as a form of collateral.
⛏️ PROOF OF WORK vs PROOF OF STAKE 👛
We covered the proof of work (PoW) consensus mechanism in detail in our article on Bitcoin Mining. 💡 Essentially, Pow involves energy-intensive mining processes 🔌📈 carried out by large banks of expensive mining rigs to solve for a hash that unlocks new coins in that cryptocurrency. Those miners are then rewarded with a portion of that cryptocurrency.
Unlike PoW, no energy-intensive mining is required on PoS networks. Instead, the PoS mechanism randomly chooses a block creator, or validator, to validate blocks of data where the cost of an intended malicious error is greater than the block reward.
PoS algorithms use several methods to select who will validate the next block. This is determined by:
- the size of the stake: the more tokens staked, the greater the chance to be a validator.
- the age of the tokens: the longer the tokens have been unspent, the greater the chance of being chosen to validate.
- random selection.
✔️ Key advantages of proof of stake include a reduction in the amount of processing power needed to validate block information and transactions on PoS blockchains. The mechanism also lowers network congestion and removes the rewards-based incentive PoW blockchains have.
🌟 DELEGATED PROOF OF STAKE (DPoS)
In a popular evolution of the PoS concept, delegated proof of stake (DPoS) occurs when users of a network vote and elect delegates (also known as witnesses or block producers) to validate the next block. Users pool their staked tokens into a staking pool linked to a particular delegate.
According to its advocates, DPoS is a more democratic way of choosing who verifies the next block, allowing a more diverse group of people to participate in the process since it’s based on earned reputation as a lawful staker, rather than overall wealth. Additionally, because there are a limited number of validators, DPoS allows the network to reach consensus more quickly.
📲 THE BLOOM APP — ANOTHER EASY WAY TO EARN CRYPTO
👉 An even more passive method and easier way to earn crypto than staking is the Bloom shopper rewards app 📲. It allows you to earn crypto such as Ethereum and Bitcoin with every purchase made on your Visa card 💳.
🦉 All you need to do is download the Bloom app, register an account, link your Visa card and shop anywhere using your credit or debit card.
💰 With every purchase, you will earn Bloom Coins by simply using your Visa card💳. The more you use your card, the more Bloom Coins you will earn.
🎁 Bloom Coins can be redeemed for in-app rewards and converted into crypto.
🆓 Converting crypto on Bloom, such as Ethereum, is free of charge and has no gas fees!
💎 Earn exclusive 3x Bloom Coin rewards with a Premium Membership.
The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such. Bloom does not recommend that any cryptocurrency or NFTs should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.