Proof of Stake (PoS)

Proof of Stake (PoS) is an alternative to the Proof of Work (PoW) system in which the amount of coins one holds (stake) determines their approval rate for mining new blocks. Proof of Stake addresses a few problems with the PoW system.

1. Transaction fees, long-term electricity costs, security improvement

2. Trends of centralization and corporate dominance of mining

3. Different interests among miner and holders

By treating coins as a “stock” for capital costs, it can eliminate much of the operating cost of PoW mining. PoS uses coin stake rewards in place of coinbase rewards, which are generally not a fixed amount. It is proportional to the number of coins held and how long they’ve been held by the PoS miner. Regardless of computing, hardware, and electricity costs, every PoS miner can obtain the same profit ratio (interest rate) on their held coins while not suffering from the centralization of PoW.