Proof-Of-Stake Explained

Proof-of-Stake is when a miner is locking a number of coins in order to verify a block of transactions. The calculations in the Proof-of-Stake algorithm are much easier to solve by computers so the only thing you need to do is to show that you own a part of all coins available in a certain currency. Basically, if you own 3% of ETH you can mine 3% of all Ethereum transaction worldwide.

Technically this algorithm is a much fair system than the Proof-of-Work because everyone can become a miner. With the PoW protocol, if you spend 10 times as much money on expensive mining hardware, you will be able to produce more computational power so you could allow further advantages because of the expensive equipment. But PoS could increase community participation and will distribute the work evenly in the entire network and will eventually bring to a highly democratized system.

Ethereum is planning to switch from Proof-of-Work to Proof-of-Stake system with the protocol called Casper. PoS would eventually get rid of traditional miners and create virtual ones or create validators. Validators would produce a block proportional to their stake so it’s very similar to PoW. If you stake more, you have a higher chance of solving a block. This would solve issues of mass hoarding of coins in order to protect the value of the currency.

Switching from Proof-of-Work to a Proof-of-Stake is better for the environment. And not only that. PoS will help to increase the community participation and will level fields for miners, and this will mostly benefit Ethereum.