Proof of Stake is a consensus mechanism introduced in 2012 to solve excessive energy usage and scalability problems of blockchains. There is no mining in the Proof of Stake consensus mechanism, thus there are no mining rewards. Instead of mining rewards, validators earn transaction fees.
Similar to Proof of Work, a blockchain using the Proof of Stake consensus mechanism consists of a sequence of transactions and their blocks. In Proof of Stake, the first block on the blockchain is coded into the software, and this block is called the Genesis Block. Subsequent blocks added to a blockchain always contain confirmation of previous blocks, and all contain an updated copy of the blockchain.
To become a validator in the Proof of Stake consensus mechanism, a certain amount of cryptocurrency must be staked on a blockchain network. The more network-accepted cryptocurrencies you stake on a blockchain network, the higher your chance of being selected as a validator for the next transaction.
There are some requirements to become a validator and they are as follows:
You need to stake a specified amount of cryptocurrency that is determined on the blockchain network and not withdraw it for a certain period.
When you become a validator, if you confirm transactions incorrectly, the network may confiscate the amount of cryptocurrency you staked.
Your internet connection must be interrupted.
The Proof of Stake consensus mechanism has advantages and disadvantages compared to Proof of Stake. As we mentioned before, Proof of Stake is much more useful and effective compared to Proof of Work in terms of energy usage and scalability. However, the Proof of Stake consensus mechanism is much more vulnerable to a 51% attack, which we explained in our article titled “What Is Proof of Work?”. In Proof of Stake, if 51% of the cryptocurrency is owned by an individual or community, the approval of transactions will be under the control of the party with the 51% supply.
Another disadvantage is that unlike the Proof of Work consensus mechanism, where anyone with expensive hardware can be a miner despite current hardware prices, the more cryptocurrencies you have in the Proof of Stake consensus mechanism, the greater your advantage. And this leads to wealthy validators owning more assets. However, in some cases, there are factors to determine the random selection of validators. In Proof of Stake, the validator who earns a block reward is paid in the network’s valid cryptocurrency, as in the Proof of Work consensus mechanism.