Proof of Stake (PoS)
What Is Proof of Stake (PoS)?
Proof of stake (PoS) is a system used by some blockchains to approve new transactions and add them to the chain. In PoS, people who own a certain cryptocurrency can lock up (or "stake") their coins to have a chance to be chosen as validators. The more coins someone stakes, the higher their chance of being picked. This system uses less energy than older methods like Proof of Work (PoW) and rewards participants with extra coins for helping secure the network.
How It Works
- Staking: Participants (validators) lock up a certain amount of their cryptocurrency as a stake. The network selects validators to propose and validate new blocks based on the size of their stake and sometimes the length of time they've held it.
- Block Rewards: If chosen, a validator checks and adds transactions to the blockchain and earns rewards, typically in the form of transaction fees or new tokens.
- Security: Validators have a vested interest in maintaining the integrity of the network. If they act dishonestly, they risk losing their staked tokens.
Example
Ethereum 2.0: Ethereum upgraded from Proof of Work (PoW) to Proof of Stake (PoS) to make the network more scalable and energy-efficient. In this new system, validators lock up (or "stake") their ETH to help confirm transactions and create new blocks, earning rewards in return. On Ouinex you can stake $OUIX in return for various rewards. Through our EARN offering, you can also stake other coins for up to 12% on USDC.
Comparison with PoW
PoW relies on solving computational puzzles, consuming large amounts of energy. In contrast, PoS bases block validation on the amount of cryptocurrency staked, which uses significantly less energy and encourages long-term network participation.
In short, Proof of Stake is like a lottery where participants’ chances of validating a block and earning rewards increase with the amount of cryptocurrency they stake.