What is Proof of Stake?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
Proof of Stake assigns the right to produce blocks to participants who lock up the chain's own token. Misbehaviour costs them that stake, so honest behaviour is the rational choice. Ethereum switched to this model in 2022.
Key points
- Validators are chosen from those who lock up tokens
- Provable misbehaviour is punished by slashing the stake
- Uses a small fraction of Proof of Work's energy
- Withdrawals usually involve a waiting period
Definition
A consensus algorithm that selects validators from participants who have locked the network's token as collateral.
Where PoW stakes computing power, PoS stakes the asset itself. A validator locks up tokens and then proposes and attests to blocks under the protocol's rules. Provable violations are punished by slashing — destroying part or all of the stake.
On Ethereum, running your own validator requires 32 ETH. Smaller amounts can participate through pooled staking services or exchanges, but that means accepting the operator's counterparty risk and fees.
Staked assets are not instantly liquid. Exiting Ethereum's validator set involves a queue that can take days when busy. You should go in knowing there will be periods when the price moves and you cannot act.
Watch out for
- · Downtime or operator error can reduce rewards even without misconduct
- · Staking through an exchange or service adds that provider's counterparty risk
- · How rewards are taxed varies by jurisdiction and circumstance