Proof of stake

Distributed consensus about a new block in blockchain could be reached not only by solving the cryptographic puzzle (like in the bitcoin network). Instead, new blockchain networks and crypto-currencies introduce proof-of-stake consensus mechanisms. What are the differences? How is it working? And most importantly, what’s the advantage of that?

The main differences between proof-of-work and proof-of-stake are:
- next block is added by a randomly chosen node from the network,
- nodes stake their money to confirm the correctness of the next block,
- and last but not least no miners only validators this time.

In detail to become a validator, a node needs to deposit some money as a stake. The size of the stake determines the chances to be chosen. It’s a linear correlation and the more you stake the higher chances are. After choosing, the validator needs to gather and check the data (i.e. to not allow double payment situations). When he produces a valid block he will get transaction fees, but if he tries to add a bad one he will lose some part of their stake. To give others time to check the data the stake will be blocked for some time but after some time it will be returned to the validator.

So what are the advantages over proof-of-work
- firstly it does not need large amounts of computational power — currently bitcoin network consumes a similar amount of power as i.e. Hungary,
- it could be much faster with similar security — in both cases, you need to gather 51% of resources (computational or value) but to achieve this bitcoin network produces a new block only every 10 minutes,
- it is also fairer as when you are mining bitcoin you can use an economy of scale but here the rule is simple — the more you risk the higher chances you will get the fees,
- it is more future proof — the computational power of chips is still rising and at some point in the proof-of-work network someone could be much faster than others and take over the blockchain.

However, making the proof-of-stake mechanism work efficiently and securely is not easy, so technology adoption is still ahead of us.