Proof-of-Stake (PoS) is a consensus mechanism and an alternative to the Proof-of-Work (PoW) which requires fewer resources. It is also a way to solve the scalability issue in the blockchain, which arises due to its constant growth and complexity.
The validators do the same thing miners do in the Proof-of-Work system. They order transactions and create new blocks so that all nodes can agree on the state of the blockchain network.
Proof-of-Stake is the underlying mechanism that activates validators upon receipt of enough stake. By staking, users contribute their tokens to network maintenance and in turn generate passive income.
Users never transfer their tokens to the validator owner’s wallet, they become locked in the staking smart contract, while delegating their voting power to the validator they’ve chosen. Once the validator starts validating new blocks, users will get their rewards.
A reward is a number of tokens that the network delivers for each validated block. It comes from fees and inflation.
The user pays a fee each time he executes the transaction, which will go to the validators who help secure the network.
On the other hand, the validators, and the users who delegate to them, receive staking rewards for each block that is validated on the network, which is called inflationary rewards.
Mining requires a lot of energy because it’s done using powerful computers capable of generating thousands, millions, and even billions of hashes per second.
But validators aren’t competing. They are randomly selected to create blocks and check and confirm blocks when not creating them.
Validating doesn’t require large investments in hardware or energy, so it is more democratic because anyone can join.
To participate in a PoS chain, users need a non-zero amount of crypto, an internet connection, and any computer, which opens doors for a much larger group of people.
PoS architecture also allows the implementation of sharding, which in turn affects the improvement of scalability. And all this without compromising security!
However, Proof-of-Stake is still in its early stage and will only show its full potential in time.
To learn more about Kerberus Prime — a Swiss-based non-custodial StaaS (Staking as a Service) platform, visit here.
*This article is available also on Medium.