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What is proof of stake (PoS)?

In proof-of-stake (PoS) blockchains, such as Cardano, stake pool operators validate network activities. Operators (or slot leaders) are elected based on their holdings (stake) in the associated cryptocurrency (ada).

One of the key features of PoS is that as an operator's value increases, the opportunity to maintain the ledger also increases. This means a higher chance to produce new blocks that can be added to the blockchain and timestamped accordingly. The creator of a new block is chosen based on a combination of random selection and a determination of their stake, or wealth. A type of leader election occurs within the chain. Within a proof-of-stake protocol, participants get rewards for helping maintain network activities. This approach encourages the steady and stable growth of the blockchain incentivizing participants at the same time.

Primary advantages of proof of stake

Some of the primary advantages of PoS over PoW include:

  • rigorous security protocols are incorporated into a PoS protocol

  • reduced centralization - the risk of centralization is reduced by protocol parameters eliminating power accumulation for one participant

  • energy efficiency - energy consumption is extremely efficient as a smaller amount of electricity, as well as hardware resources, are needed to produce and run the blockchain

  • cost efficiency - PoS currencies are far more cost-effective than those operating on PoW protocols