Proof of Stake (PoS) is a blockchain consensus mechanism where participants “stake” native coins in validator nodes to secure the network. Just like PoW, validator nodes are randomly chosen (proportional to the amount of crypto and length of time staked) in a lottery to verify transactions and add the next block. The node is then rewarded by the network with a predetermined amount of native crypto.

Running a node usually requires a large amount of crypto (32 ETH for ETH2 = ~$100k at the time of writing) and technical know-how. Validating a “bad” block will result in slashing and loss of crypto that is staked. Staking pools are available to those who want to participate but don’t have the resources to run a node on their own.

Why is Proof of Stake needed?

PoS solves the issue of verifying transactions and securing a network without the use of energy intensive miners. PoS is also faster and more scalable compared to current PoW blockchains which will be important with new features like smart contracts, Defi, NFT’s and more. Many PoS blockchains have decentralized platform governance by allowing validator nodes to vote on updates and changes to the network.

Advantages:

• Faster and Scalable compared to Proof of Work blockchains
• Energy efficient
• Low barrier to entry
• Decentralized platform governance
• Low transaction fees

Disadvantages:

• Unproven long term
• Users with large amounts of crypto can have considerable influence on consensus