What is Proof of Stake (PoS)?

If you know how Bitcoin works, you’re probably familiar with Proof of Work (PoW). It’s the mechanism that allows transactions to be gathered into blocks. Then, these blocks are linked together to create the blockchain. More specifically, miners compete to solve a complex mathematical puzzle, and whoever solves it first gets the right to add the next block to the blockchain.

Who created Proof of Stake?

One of the early appearances of Proof of Stake may be attributed to Sunny King and Scott Nadal in their 2012 paper for Peercoin. They describe it as a “peer-to-peer cryptocurrency design derived from Satoshi Nakamoto’s Bitcoin.

What is Delegated Proof of Stake (DPoS)?

An alternative version of this mechanism was developed in 2014 by Daniel Larimer called Delegated Proof of Stake (DPoS). It was first used as a part of the BitShares blockchain, but soon after, other networks adopted the model. These include Steem and EOS, which were also created by Larimer.

How does staking work?

As we’ve discussed before, Proof of Work blockchains rely on mining to add new blocks to the blockchain. In contrast, Proof of Stake chains produce and validate new blocks through the process of staking. Staking involves validators who lock up their coins so they can be randomly selected by the protocol at specific intervals to create a block. Usually, participants that stake larger amounts have a higher chance of being chosen as the next block validator.

How are staking rewards calculated?

There’s no short answer here. Each blockchain network may use a different way of calculating staking rewards.

  • how many coins the validator is staking
  • how long the validator has been actively staking
  • how many coins are staked on the network in total
  • the inflation rate
  • other factors

What is a staking pool?

A staking pool is a group of coin holders merging their resources to increase their chances of validating blocks and receiving rewards. They combine their staking power and share the rewards proportionally to their contributions to the pool.

What is cold staking?

Cold staking refers to the process of staking on a wallet that’s not connected to the Internet. This may be done using a hardware wallet, but it’s also possible with an air-gapped software wallet.

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