Proof-of-stake is a type of consensus mechanism used by blockchains to achieve distributed consensus. In proof-of-work, miners prove they have capital at risk by expending energy. In proof-of-stake, validators explicitly stake capital in the form of ether into a smart contract on Ethereum. This staked ether then acts as collateral that can be destroyed if the validator behaves dishonestly or lazily. The validator is then responsible for checking that new blocks propagated over the network are valid and occasionally creating and propagating new blocks themselves.
Proof-of-stake comes with a number of improvements to the proof-of-work system:
- better energy efficiency – there is no need to use lots of energy on proof-of-work computations
- lower barriers to entry, reduced hardware requirements – there is no need for elite hardware to stand a chance of creating new blocks
- reduced centralization risk – proof-of-stake should lead to more nodes securing the network
- because of the low energy requirement less ETH issuance is required to incentivize participation
- economic penalties for misbehaviour make 51% style attacks exponentially more costly for an attacker compared to proof-of-work
- the community can resort to social recovery of an honest chain if a 51% attack were to overcome the crypto-economic defenses.