Proof of Stake (PoS) has become a popular alternative to Bitcoin’s Proof of Work (PoW) consensus mechanism. Proponents of PoS claim it has benefits over PoW like minimizing resource usage, improving decentralization, and enhancing blockchain’s scalability. At Unbounded Capital we disagree. For an introductory explanation of what PoS is we have compiled the following resources. For a refutation to the claim that PoW can be seamlessly swapped out for PoS we recommend you read Chapter Five of our Ebook.
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Ledger Academy succinctly defines PoS as:
“a consensus algorithm for blockchain networks that is based on a randomly selected state of validators who “stake” the native network tokens by locking them into the blockchain to produce and approve blocks. Validators are rewarded directly corresponding to their total stake, incentivizing nodes to validate the network based on a return on investment (ROI). “
They summarize PoS’s key takeaways as:
Staking is the action of locking crypto assets to secure the network, and being paid interest for doing so.
Proof-of-stake is a consensus algorithm that decides on who validate the next block, according to how many coins you hold, instead of miners cracking cryptographic puzzles using computing power to verify transactions like they do with traditional Proof-of-Work.
Proof-of-stake has widespread support among many industry experts, and should allow better sustainability .
The following resources will expand on the definition of PoS, its alleged benefits, and potential vulnerabilities: