Proof of stake
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Proof of stake (PoS) protocols are a class of consensus mechanisms for blockchains that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency. Unlike a proof of work (PoW) protocol, PoS systems do not incentivize extreme amounts of energy consumption. The first functioning use of PoS for cryptocurrency was Peercoin in 2012. Other uses have followed, and the Ethereum Foundation has announced a plan to switch Ethereum from PoW to PoS within 2021.
For a blockchain transaction to be recognized, it must be appended to the blockchain. Validators carry out this appending; in most protocols, they receive a reward for doing so. For the blockchain to remain secure, it must have a mechanism to prevent a malicious user or group from taking over a majority of validation. PoS accomplishes this by requiring that validators have some quantity of blockchain tokens, requiring potential attackers to acquire a large fraction of the tokens on the blockchain to mount an attack.
Proof of work, another commonly used consensus mechanism, uses a validation of computational prowess to verify transactions, requiring a potential attacker to acquire a large fraction of the computational power of the validator network. This incentivizes consuming huge quantities of energy. PoS is tremendously more energy-efficient.
You have to switch to proof of stake. Proof of work should be illegal.
— William Entriken, Ethereum developer (April 2021)
PoS protocols can suffer from the nothing-at-stake problem, where validator nodes validate multiple conflicting copies of the blockchain because there is minimal cost to doing so, and a smaller chance of losing out on rewards by validating a block on the wrong chain. If this persists, it can allow double-spending. This can be mitigated through penalizing validators who validate conflicting chains or by structuring the rewards so that there is no economic incentive to create conflicts.
Variations of stake definition
The exact definition of “stake” varies from implementation to implementation. For instance, some cryptocurrencies use the concept of “coin age”, the product of the number of tokens with the amount of time that a single user has held them, rather than merely the number of tokens, to define a validator’s stake.
Delegated proof of stake
Delegated proof of stake (DPoS) systems separate the roles of the stake-holders and validators, by allowing stake-holders to delegate the validation role.
The first functioning implementation of a proof-of-stake cryptocurrency was Peercoin, introduced in 2012. Other cryptocurrencies, such as Blackcoin, Nxt, Cardano, and Algorand followed. However, as of 2017, PoS cryptocurrencies were still not as widely used as proof-of-work cryptocurrencies.
There have been repeated proposals for Ethereum to switch from a PoW to PoS mechanism, e.g., as advocated by Ethereum co-founder Vitalik Buterin and leading Ethereum developer William Entriken.In April 2021, the Ethereum Foundation announced that it planned to switch Ethereum to a PoS system by the end of 2021. However, switching to a PoS system is a substantial change, and progress toward the move has not been steady. As Entriken also said, “It’s always been three months away. These things don’t just happen immediately.”