Why is Proof-of-Stake consensus key to the crypto ecosystem?

Highlights

• Proof-of-Stake system differs from Proof-of-Work (PoW), which uses high-end computers to solve complex algorithms
• Proof-of-Stake uses tokens as the unit of account.
• Under Proof-of-Stake, every validator has the equal opportunity to stake tokens and earn rewards 

Proof-of-Stake (PoS) is a consensus mechanism for validating transactions and creating new blocks in blockchain technology. The validators are required to stake the token to validate a transaction. This is done to build a consensus among all the nodes in the network. Proof-of-Stake uses tokens as the unit of account. For instance, ETH will be the native token in the case of Ethereum.

Proof-of-Stake system differs from Proof-of-Work (PoW), which uses high-end computers to solve complex algorithms for validating transactions.

Experts and beginners in the sector reportedly prefer this accessible algorithm. An apparent reason for the preference for Proof-of-Stake is the opportunity to earn passive income in staking. Furthermore, better variations and constant inventions in the system promise more efficient experiences.

Under Proof-of-Stake, most users stand a chance to become validators. Also, there are minuscule chances of this algorithm going towards centralization.

The joining barriers are less in comparison when it comes to Proof-of-Stake. This eliminates the threat of excessive energy expenditure and makes it environment-friendly, which is the need of the hour.

The bright side of Proof-of-Stake

Certain advantages mentioned below make Proof-of-Stake more preferred and sustainable over Proof-of-work. Hence, it is being looked at as the future of cryptocurrencies.

1. Validation Protocol

Validators certify Proof-of-Stake, and these validators are called nodes. They stake their tokens in the algorithm. To be a validator, there are certain conditions, i.e., the person must lock, stake or hold a minimum amount of tokens for a specific period.

2. Equitable

There are high costs involved in mining hardware. Some miners are more equipped to earn rewards than others, as they can purchase top-end mining hardware. This is pushing the Proof-of-Work consensus algorithm towards centralization and unfairness.

While under Proof-of-Stake, every validator has the equal opportunity to stake tokens and earn rewards collectively. This has helped in keeping Proof-of-Stake, a community-based decentralized algorithm.

Fifty-one per cent of attacks is one of the main reasons for cryptocurrency volatility, and this decentralized approach safeguards Proof-of-Stake from 51 per cent of attacks.  

3. Low Energy Composition

As mentioned above, Proof-of-Stake does not require mining hardware, and token staking can happen on a personal computer. In addition, it does not require validators to solve and get involved in complex computations to mine new tokens. Anybody can participate in the peer-to-peer network without purchasing and installing cooling systems and powerful computers.

This brings in the aspect of sustainability and environmental friendliness.  

4. Supports proper validation

Proof-of-Stake makes the blockchain secure. It incentivizes the proper validation and disincentivizes the improper ones. If the validator approves of fraudulent transactions, they will lose stake.

Bottom Line

The Proof of Stake mechanism is making blockchain technology sustainable and friendly. At present, the industry needs a mechanism that is decentralized, environment-friendly, and rewarding at the same time. Proof-of-Stake is the answer to all these demands. Although there are few risks involved in locking up the assets in Proof-of-Stake, the passive income and other benefits make it worthwhile.

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