As with proof-of-work, proof-of-stake also aims to achieve consensus within the blockchain, yet unlike proof-of-work, proof-of-stake employs an election process, selecting block creators from a pool of willing nodes on the network, also referred to as validators.
But what do we mean by willing?
Adopted by Bitcoin in 2009, and subsequently many other Blockchains, Proof-of-Work has become one of the most widely used consensus algorithms within the world of cryptocurrency.
But how does it work?
Well, not everyone on the network can validate blocks, as to do so, one must first be willing to lock or “stake” a certain amount of their coins into the network, opening up the opportunity for them to be selected as the next validator.
Now, proof-of-stake algorithms could simply select the user, or node, with the highest stake to become the next validator, however, this would result in a system that favours only the wealthiest members of the network, as the more they’re willing to risk, the better their chances of being selected.
Stopping here would result in a truly deterministic system that could be manipulated with ease, and as such, would be open to security breaches and fraud.
To mitigate determinism, proof-of-stake systems employ a combination of additional measures. And although these additional measures vary from one network to the next, two common methods include randomisation and staking age.
Randomisation looks for the lowest hash value, combining this with the size of the stake to select a validator, whereas staking-age factors in the number of days a nodes tokens have been staked, together with the stake amount to choose a validator.
Block validation within the realms of proof-of-stake is referred to as forging, and once a node has been selected to forge the next block, it will verify that the transactions within the block are valid, sign the block, and then add it to the blockchain, receiving a transaction-fee as a reward for the undertaking.
And finally, as proof-of-stake systems do not rely on large amounts of computational resources to function, they are far more energy-efficient and therefore less costly than Proof-of-Work.