Proof of stake is a method of validating cryptocurrency transactions. It is a newer form of consensus mechanism—the way a blockchain confirms transactions—than the original “proof of work” mechanism used by Bitcoin that relies on energy-intensive mining.
Proof of stake relies on “validators” to lock up lots of cryptocurrency within a blockchain, then the network chooses a validator to process a transaction. The premise is that those who have locked up the most coins have the most skin in the game, and so are likely to be the most trustworthy. Quantifying trust is crucial in blockchain networks, which operate without intermediaries. If a validator tries to defraud a network, their stake gets “slashed”—and their tokens are forfeited.
The most popular proof-of-stake network is Ethereum. In September 2022, the blockchain switched from proof of work, the consensus mechanism based on cryptocurrency mining. Other popular proof-of-stake chains include Solana, Avalanche, Tezos, and Polygon.
One of the driving forces behind Ethereum’s change—and indeed the shift of the wider industry away from proof-of-work models—is energy usage. The Ethereum Foundation, the nonprofit that supports its development, claims that Ethereum shed 99.5% of its energy consumption after the transition.
Advocates claim that this lightens the burden on the environment and helps the network remain decentralized—it’s a lot easier to lock away a few coins than buy a computer fast enough to profitably mine cryptocurrency through proof of work.
There are two ways of joining a proof-of-stake network and earning rewards. The first is to set up a node and become a full validator. This is a larger commitment—Ethereum, for instance, requires validators to stake at least 32 ETH. The second is to delegate coins to a validator like Lido or Coinbase, which take a small cut for providing the service.
Delegating is a pretty simple affair. Exchanges like Coinbase allow some users to stake ETH on the Ethereum blockchain without leaving the platform, and wallets like Solflare permit Solana staking within an in-browser web extension similar to MetaMask.
Staking-as-a-service companies let validators stake tranches of 32 ETH while managing the hardware, while pooled staking services, such as Lido, handle the hardware but also let stakers delegate as much or as little ETH as they’d like.
Go deeper:
Ethereum staking—Ethereum Foundation
See also:
What is Ethereum?
What is Solana?
What is Bitcoin?