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When most people think of cryptocurrencies like Bitcoin or Ethereum, they envision huge warehouses filled with racks of specialized computers working around the clock to verify transactions and secure the network, such as proof-of-stake PoS.
In this article, we’ll explore how proof-of-stake works, examine some projects already utilizing it, and discuss why it may represent the future of cryptocurrency.
The energy-intensive “proof-of-work” process underpins the first generation of blockchain technology. However, a newer consensus mechanism called “proof-of-stake” is gaining popularity as it provides many of the same security guarantees at a fraction of the environmental cost.
Proof-of-stake is an alternative consensus algorithm to proof-of-work for securing blockchain networks. Instead of requiring miners to solve computationally intensive puzzles to validate transactions and earn rewards, PoS relies on validators "staking" or locking up their existing holdings of a cryptocurrency.
A blockchain using PoS selects validators randomly in proportion to their stake to add new blocks. If a validator proposes an invalid or malicious block, their stake is slashed or taken as a penalty. This deters bad behavior since stakeholders have real capital at risk. Let’s continue with how PoS works!
Validators on a PoS blockchain confirm transactions and add new blocks to the chain. To become a validator, one must deposit or "stake" a certain amount of the native cryptocurrency, like 32 ETH on Ethereum 2.0.
In each new block interval, or "epoch", a randomly selected validator is chosen to propose a block. Other validators then validate the block and cast votes on its validity. If over 2/3 of staked validators vote in favor, the block is confirmed, and the proposer validator earns a block reward.
As validators correctly participate over time, their staked funds continue earning interest to incentivize secure and honest behavior on the network. This is how PoS works in general.
Ethereum, the second largest blockchain network by crypto market cap, transitioned from PoW to PoS through a process known as "The Merge" in September 2022.
Now, instead of crypto mining new Ether (ETH) through energy-intensive calculations, validators put up 32 ETH (around $58,000 currently) as a stake.
They receive profits from transaction fees in proportion to their stake. EURK, a safe euro stablecoin that has undergone auditing by Cryptobunq, is another notable blockchain that uses PoS and is available on ERC20.
As mentioned earlier, EURK is a securely audited euro-backed stablecoin that has reserves in Switzerland and the Dominican Republic to facilitate fast, reliable, and transparent transactions on multiple blockchains. You can check “What are euro stablecoin and EURK?” for further information.
Proof-of-stake is central to realizing that vision at scale while sustaining our world at the same time due to the significant benefits of proof-of-stake, such as sustainability.
Proof-of-stake blockchains are much more environmentally sustainable than energy-intensive proof-of-work chains, which incur massive carbon footprints while securing networks. According to some sources, the energy usage of PoS blockchains is over 99% lower than PoW alternatives like Bitcoin.
PoS also lowers the barriers to participation since specialized crypto mining hardware is not required; users need only "stake" the native cryptocurrency. If you want further comparison between PoS vs. PoW you can check our detailed guide.
This promotes decentralization and ensures the network is secured by invested stakeholders rather than miners with outsized influence. PoS blockchains also tend to offer faster transaction finality times and can scale well to accommodate more users.
While all PoS blockchains broadly work in a similar manner, there are variants tailored for different uses. For example, delegated proof of stake (DPoS) concentrates block production among elected delegates, reducing participation requirements.
There are different types of proof of stake, such as delegated proof of stake (DPoS), leased proof of stake (LPoS), pure proof of stake (PPoS), liquid proof of stake (LPoS), proof of importance (PoI), proof of validation (PoV), hybrid proof of stake (HPoS), and nominated proof of stake (NPoS).
Liquid Proof of Stake allows users to stake small amounts by delegating them to masternodes or crypto exchanges. Proof of Importance Stake lets users stake using funds from other blockchains, boosting security on sidechains.
Threshold signatures enable validators to share the private keys needed for signing, eliminating single points of failure. Each variant balances factors like scale, decentralization, and security for diverse blockchain decentralized applications. If you need more details, you can check "Types of PoS.”.
Ethereum plans to transition from its current proof-of-work system to a proof-of-stake model called "Casper" through the "Beacon Chain" update. Once fully merged, Ethereum 2.0 will reduce energy use by over 99% and scale to thousands of transactions per second.
Tron employs a delegated proof-of-stake consensus protocol to secure its smart contract platform, aiming for high throughput and low costs. Tezos self-amends its protocol via on-chain governance incentives, securing over $1 billion in value through its liquid proof-of-stake consensus.
Cardano already uses the delegated proof-of-stake system known as Ouroboros to handle transactions with strong crypto guarantees and cast votes for network parameters. This shows what proof-of-stake means for different blockchains.
In the business world, proof-of-stake principles can be applied to some important use cases. For example, a decentralized media sharing platform may use a version of proof-of-stake to handle monetization and steward streaming revenues.
Instead of an intermediary taking a cut, content creators could stake platform tokens in proportion to uploads and earn more based on viewership and engagement over time.
Employee representation in a cooperative business might also work via a liquid proof-of-stake (LPoS) model to ensure stakeholder buy-in remains proportional. Like in cryptocurrency, real-world incentives can be better aligned through decentralization secured by 'skin in the game.'
For crypto assets, proof-of-stake-based digital currencies offer additional advantages beyond security and green incentives.
A euro stablecoin EURK is a secure, audited, and 1:1 euro backed stablecoin built on multiple blockchains, empowering innovation with reliability and efficiency. EURK offers transparent transactions that are fast and secure.
EURK is safe to use because Cryptobunq, a secure crypto service provider, securely issues and audits it. This makes EURK a great payment rail for all kinds of decentralized applications and services across borders.
The transparency of EURK's multiple reserves is also ensuring trust for regulated institutions and individuals to engage with digital assets through a stable gateway. You can check “transparency for stablecoin” to understand its importance.
It's clear that proof-of-stake offers compelling scalability, economic, and sustainability benefits compared to energy-intensive proof-of-work protocols.
As larger chains like Ethereum transition to PoS models and new generation blockchains employ it from the start, PoS will likely become the dominant consensus mechanism securing cryptocurrency networks.
Many predict it could eventually power applications far beyond currency as well. Therefore, proof-of-stake is most likely to play an important role for the future of cryptocurrency to secure these digital assets.
With continued innovation, proof-of-stake and its variants may one day underpin everything from decentralized cloud services to global supply chains. For blockchain technology to achieve mainstream adoption, an ecological consensus like PoS paving the way seems inevitable.
Proof-of-stake represents a revolutionary improvement over traditional mining-based consensus. As the technology develops and gains real-world usage, we will likely look back on the proof-of-work protocols of today similarly to how we now view early centralized payment networks.
Just as the internet transformed how we connect and share information globally, blockchain promises to reshape how value and assets are exchanged in an open, decentralized future. Proof-of-stake will be central to realizing that vision at scale while sustaining our world at the same time.
If you want to benefit from PoS advantages with a reliable stablecoin, you can trust EURK. EURK provides security, ease of use, and fast transaction opportunities for your business. Become a partner and start to benefit from these advantages for prospective business growth!
