What is Proof of Stake (PoS)

Proof of Stake (PoS) is a blockchain consensus mechanism that selects validators to propose and attest to new blocks based on the amount of cryptocurrency they have "staked" (locked as collateral) rather than through energy-intensive computational competition as in Proof of Work. PoS has become the dominant consensus mechanism for new blockchain networks and was adopted by Ethereum through The Merge in September 2022.

THE CORE MECHANISM

In Proof of Stake: Validators lock (stake) the network's native token as collateral. A pseudorandom selection process (weighted by stake size) designates one validator as the block proposer for each slot. The proposer creates a new block and broadcasts it to the network. A committee of other validators (attesters) review and vote to confirm the block's validity. If the block follows protocol rules, it is finalised and the proposer earns staking rewards (newly issued tokens + transaction fees). Dishonest validators, those who propose contradictory blocks, attest to invalid blocks, or go offline repeatedly, face slashing: the automatic destruction of a portion of their staked collateral.PoS VS. PoW:

KEY DIFFERENCES

Energy consumption: PoS uses approximately 99.95% less energy than PoW, with no mining hardware or electricity waste.
Security model: PoS security is backed by economic capital at risk (staked tokens). PoW security is backed by physical hardware investment and energy cost.
Attack cost: Attacking a PoS network requires acquiring 33% or more of staked tokens (potentially billions of dollars). Attacking PoW requires controlling >50% of hash rate.
Centralisation risks: PoS has wealth concentration concerns (larger stakers have more influence). PoW has mining pool centralisation concerns.

ETHEREUM PROOF OF STAKE

Ethereum validators stake 32 ETH (approximately $112,000 at $3,500/ETH). Rewards are approximately 3-4% APY. Slashing for double-signing can destroy up to the full 32 ETH stake. Liquid staking via Lido (stETH) and Rocket Pool (rETH) allows participation with any amount.

DELEGATED PROOF OF STAKE

(DPOS)Used by Cardano, Solana, TRON, BNB Chain, token holders delegate stake to validators without running their own infrastructure, earning proportional rewards.

Terms in addition to the Proof of Stake (PoS)

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.