What does Proof-of-Stake mean?

Written by Evgenia Sidorova
Written by
Investing reporter
ECOS brand manager....
2   min.

Proof-of-stake (PoS) is one of the ways of preventing double-spending of cryptocurrencies. The consensus algorithm was originated from the Bitcointalk forum initiated in 2011 in order to discuss and solve problems with the main algorithm at present, Proof-of-Work (PoW). Despite the similarity of the reason they were created, their methods are totally different from each other.

Bitcoin and Ethereum are the two most expensive kinds of cryptocurrency with the biggest market cap, both of them are working with the help of proof-of-work. Despite this, Ethereum is possibly going to work on the basis of proof-of-stake in order to expand the flexibility of the blockchain and minimize energetic expenses.

Means of goal of consensus

PoS is a consensus aimed at keeping blockchain interconnected. The consensus stands for the way to prevent double-spending of digital currencies. If someone invests coins two times and more, the risk of misleading systems is increasing, which leads to a drop in the value of coins.

This problem was the most difficult to solve, mainly for definite digital currencies with insufficient ways of regulation that should otherwise be controlled by the state. Central authorities would be authorized to watch every person’s financial operations and the quantity of money they have.

Bitcoin was the first blockchain network to start using proof-of-work in order to manage this problem.

The way Proof-of-Stake works

The Bitcoin network is directed by a lot of users all over the world. Nodes on the network are convinced they are following certain rules. The main way of stable work is explained by maintaining the stability of architecture throughout the network. In case of failure, the connection between nodes would cause leading to a single activity.

Reaching consensus between global users is more difficult than it seems at first sight. Defined money has been a subject of various speculations for a long time until the emergence of Bitcoin. Its founder, Satoshi Nakamoto, had connected the proof-of-work algorithm for solving this problem and had globally introduced the concept of defined money.

In other words, these consensus algorithms are created in order to verify financial operations with blockchain consisting of blocks keeping the data concerning the most recent financial operations. PoW and PoS concentrate on the person with the potential to build the next block in their own authentic way.

Miners are already successfully using proof-of-work. The huge volume of computing capacity will allow adding new blocks to the blockchain. Proof-of-stake literally means “proof” of the quantity of “stake” for each person. Miners with a bigger volume of capital, for example, in the case of Ethereum, are more likely to obtain extra blocks. The true potential of proof-of-stake is to show its strength, despite the certainty of many crypto enthusiasts and critics that it’s the future of crypto operations.

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