Proof of Stake (PoS)
In a Proof of Stake (PoS) system, validators are required to pledge a ‘stake’ of digital currency for the chance to be randomly chosen to validate transactions. They are selected based on the number of tokens they hold, a process not unlike a lottery, whereby the more tokens staked, the better the odds. Some PoS networks require a minimum amount to stake, and others may take into consideration the staking period, as well.
A type of consensus mechanism, PoS is seen as a more sustainable and environmentally friendly alternative to Proof of Work (PoW) in validating cryptocurrency transactions. It is also more secure against 51% attacks. However, as the system favours entities with a higher number of tokens, PoS has drawn criticism for its potential to lead to centralisation.
Examples of PoS consensus mechanisms: Cardano (ADA), Ethereum (ETH), Polkadot (DOT), Algorand (ALGO), and Cosmos (ATOM).
Key Takeaway
Proof of Stake (PoS) is a type of consensus mechanism used to validate cryptocurrency transactions. It works by selecting validators based on the amount of tokens staked.