Blockchain
Proof of Stake
A consensus mechanism where validators are chosen to create new blocks based on the amount of cryptocurrency they 'stake' as collateral, rather than computational power.
Last updated: January 5, 2025
What is Proof of Stake?
Proof of Stake (PoS) is a consensus mechanism where validators are selected to create new blocks based on how much cryptocurrency they lock up (“stake”) as collateral. No energy-intensive mining required.
How PoS Works
Basic Process
- Validators lock up stake (collateral)
- Protocol randomly selects validators
- Selected validator proposes block
- Other validators attest/verify
- Block added, rewards distributed
Selection Probability
- More stake = higher chance of selection
- Randomization prevents monopoly
- Designed to be fair over time
PoS vs PoW
| Feature | Proof of Stake | Proof of Work |
|---|---|---|
| Energy use | Very low | Very high |
| Hardware | Standard | Specialized |
| Entry barrier | Capital | Equipment |
| Attack cost | Stake + slashing | 51% hash power |
| Examples | Ethereum, Solana | Bitcoin |
Key Concepts
Validators
- Run node software
- Lock up stake
- Propose and validate blocks
- Earn rewards
Staking
- Lock cryptocurrency as collateral
- Minimum requirements vary
- Can be done directly or via pools
Slashing
- Penalty for misbehavior
- Lose part of stake
- Prevents attacks
- Deters bad actors
Epochs and Slots
- Time divided into epochs
- Epochs contain slots
- Validators assigned to slots
- Organized block production
PoS Blockchains
| Blockchain | Consensus | Min Stake |
|---|---|---|
| Ethereum | PoS | 32 ETH |
| Solana | PoS (PoH) | Varies |
| Cardano | Ouroboros PoS | Pool |
| Polkadot | NPoS | Variable |
| Avalanche | PoS | 2,000 AVAX |
Ethereum PoS
The Merge (Sept 2022)
- Ethereum transitioned from PoW to PoS
- 99.95% energy reduction
- Same security guarantees
- Major milestone
Validator Requirements
- 32 ETH minimum stake
- Run validator software
- Maintain uptime
- Current: ~1M validators
Staking Rewards
- ~4-5% APR currently
- Varies with network activity
- MEV rewards additional
Staking Options
Solo Staking
- Run your own validator
- 32 ETH minimum
- Full rewards
- Technical requirements
Staking Pools
- Pool resources with others
- Lower minimums
- Share rewards
- Examples: Rocket Pool, Lido
Exchange Staking
Liquid Staking
- Stake and get liquid token (stETH, rETH)
- Use token in DeFi while staked
- Combines staking + liquidity
PoS Advantages
Energy Efficiency
- 99%+ less energy than PoW
- Environmentally friendly
- No mining hardware
Accessibility
- Anyone with coins can participate
- No specialized equipment
- Lower barrier to entry
Economic Security
- Attackers need massive stake
- Stake at risk of slashing
- Expensive to attack
PoS Disadvantages
Centralization Concerns
- Rich get richer dynamic
- Large holders dominate
- Exchange staking concentration
Initial Distribution
- How were coins first distributed?
- Pre-mines can be controversial
- Less “fair” than PoW mining
Complexity
- More complex than PoW
- Various attack vectors
- Requires careful design
PoS Attacks
Nothing at Stake
- Validators validate all forks
- Solved by slashing
Long-Range Attacks
- Rewrite old history
- Mitigated by checkpoints
33% Attack
- With 33%+ stake, can halt chain
- With 66%+, can finalize bad blocks
- Very expensive in practice
Future of PoS
Trends
- More chains adopting PoS
- Better staking UX
- Liquid staking growth
- Improved decentralization
Ethereum Upgrades
- Danksharding for scalability
- Further decentralization efforts
- Restaking innovations
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