Proof of stake

Proof of stake (PoS) is a consensus mechanism in which participants called validators lock up, or stake, an amount of the network’s cryptocurrency as collateral. The protocol selects validators to propose new blocks and to attest that others’ blocks are valid. Honest work earns rewards, while provably dishonest behaviour can be punished by slashing, in which part or all of the stake is destroyed. Ethereum, for example, requires 32 ETH to run a validator.

Why it matters

Proof of stake secures the chain economically: an attacker would need to control a large share of all staked value and would risk losing it, making attacks costly. Compared with proof of work it uses far less energy because security comes from capital at risk rather than computation. The trade-off is a different set of concerns, such as the concentration of stake and the behaviour of large staking services. If a small number of providers control most of the staked supply, the practical decentralisation of the network can weaken even though the protocol itself remains sound, which is why how stake is distributed matters as much as the total amount secured.

Common misunderstanding

Staking is sometimes assumed to be entirely risk-free passive income. In reality validators can lose stake through slashing for misconduct or serious downtime, and delegating to a third-party service adds counterparty risk. Rewards are compensation for performing and securing consensus, not a guaranteed yield, and they vary with network conditions rather than being fixed like interest.

Related terms

See validator, proof of work, consensus mechanism and node.