Everstake - Learning Center
What is PoS and how does it work?
The Proof of Stake, or PoS, is a consensus algorithm, which provides trustful and fast verification of new transactions in a blockchain network. As in any other algorithm, the verification work should be completely decentralized to restrict the possibility to confirm some particular transaction multiple times, verify unreliable transactions, or jeopardize the network in any other way.
In PoS, the network users who are allowed to verify transactions, are selected based on their stake, the amount of funds they are holding in their wallets. In these terms, those who hold the biggest balances in the network are interested in its flawless operation and decentralization, otherwise, their costly balance will lose its value.
What blockchains use PoS?
PoS is a fairly old consensus algorithm, and it is used by a lot of blockchains and coins. For the first time, it was introduced by Peercoin back in 2012. PoS is also used by Nxt, Blackcoin, Stellar, Dash, Cosmos, Waves, ICON, and more.
What is the difference between PoS and PoW?
The Proof of Work, or PoW, is the initial consensus algorithm in cryptocurrency, based on solving a certain mathematical task to gather the right to verify, or sign, the upcoming transactions, and collect a reward for it. PoW process gives payouts for block production to miners with the most powerful hardware in the network.
The decentralization is achieved by the fact that the transactions are verified by different random miners, with a probability of a solved block, corresponding to their computing powers. In this case, getting 51% of all computing power in the network is required to get the opportunity to perform malicious actions, which is hardly possible in large networks.
The PoS requires much less computing power to verify transactions. To perform any attack, a block producer has to collect over 51% of all funds in the network, which is even less possible, than getting 51% of power in the PoW.
Also, thanks to the absence of the need to perform large and long computations, PoS blockchains are much faster than PoW, and transactions may be confirmed within seconds.
How does PoS staking work?
To start verifying blocks and getting rewards, a blockchain node has to stake some funds with the system. Staking is freezing a part of the balance in return for the right to verify transactions. This stake is a form of a security deposit to the system, a value that may be lost if a node performs incorrectly or maliciously.
Once the right to verify transactions is obtained, the block producer is allowed to verify all pending transactions by checking the correctness of the transferred funds and their sources. In return, the block producer is rewarded with new coins. The amount of rewards a block producer can get corresponds to the size of its stake.
The Safety of PoS
PoS is completely safe for the whole network in case no block producing nodes gather 51% of all coins that are staked. This attack is possible but pointless, as any possible profit from it will be ruined by the fact that the attacked network will lose in value and all these coins, together with the profits, will lack value.