P for Proof-of-Stake

Fifteenth edition of Web3 Alphabet

Before understanding Proof-of-Stake, we need to understand Proof-of-work. Both of them are ways to securely validate a transaction on the blockchain network.

Proof-of-work is the original method that was developed at the origin of bitcoin. We briefly discussed it when we spoke about mining and gas fees. A proof of work blockchain is verified by miners competing to solve a math puzzle first. The winner is then rewarded by the network (like the bitcoin blockchain) with a pre-decided amount of cryptocurrency.

While it is a secure and trusted way of validating transactions on a blockchain, this method also uses a huge amount of processing power. It can also be limited when a blockchain tries to scale and process a large number of transactions. Hence, a new method of validating transactions was developed called proof-of-stake.

What is Proof-of-Stake?

While proof-of-work continues to power Bitcoin and Ethereum 1.0. Proof-of-stake is powering the new cryptocurrencies like Tezos, Cardano, and Ethereum 2.0.

Generally, proof of stake uses a network of validators for the validation process. These validators contribute (or stake) their own cryptocurrency and in return they get a chance to validate blockchain transactions and earn rewards.

The selection of validator in proof of stake is done based on the crypto amount staked by each validator and how much time they have spent on the network. So in effect, the most invested validator is rewarded. Once this winner validates the newest block of the transaction, the rest of the validators verify the block and after the threshold number of verifications is completed, the blockchain is updated.

All these validators get a reward in the form of native cryptocurrency which is usually given out in proportion to each validator’s stake.

That’s all from P for Proof-of-Stake. If you recall any other Web3 terms starting from the letter P, please leave a comment and I will include them in later editions. 

Until next time!