Blockchain 101 Episode 56 – What is Proof of Stake PoS Consensus Mechanism?

Proof of Stake consensus mechanism, Also known as POS, is similar to depositing your money in a bank where interest is given based on the amount and duration held.

For cryptocurrencies that utilize Proof of Stake, the network will allocate tokens based on coin age, which is the quantity and duration of the cryptocurrency held. If you hold 100 tokens for a total of 30 days, your coin age at that point would be 3000.

PoS has 2 advantages over Proof of Work. Firstly, PoS is far more energy efficient as it does not rely on competing with computing power. Secondly, PoS is less susceptible to a 51% Attack. An attacker needs to hold 51% of tokens, which is not worthwhile as it hurts his own financial interests.

Currently, many cryptocurrencies utilize proof of work to issue new tokens and proof of stake to maintain the security of the network.