Before I get into Proof of Stake, it’s important that you first understand the basics of Proof of Work.

This video today will be building on what I covered in my last video. If you need a refresher or if you want to learn more about Proof of Work, go ahead and check out that video.

The concept of Proof of Stake mining is similar to Proof of Work mining in that the miners are still needed to unlock or create new blocks that contain new coins, which they are then rewarded.

^^^^^VIEW VIDEO HERE^^^^^

Basically, the way that Proof of Stake works, and what gives it its name, is the miners are required to hold a certain amount of the coin in their wallet, or stake, in order to qualify to mine for new blocks.

These qualified miners are then randomly selected to be able to mine the next new block and receive the new coins that are in it.
Contrast this with how Proof of Work miners are all competing to unlock the next new block, using lots of energy to do so, and it’s easy to see how Proof of Stake is more efficient.

Similar to Proof of Work and how different networks use different hash algorithms, the staking rewards and staking mechanisms differ for Proof of Stake networks as well.

We have yet to achieve perfection in this world of cryptocurrencies.

There will always be pros and cons to each system.
The problem with Proof of Work is that it takes a lot of computing power, and therefore a lot of energy to run the network and maintain the blockchain.
In fact, it is this requirement for large amounts of computer power that acts as the security measure against any one entity being able to control the network (51% attacks)
This was especially true before things like mining pools were created...but that’s something to be saved for another post.

There are many pros and cons for Proof of Work, but for the purposes of this video, here are a few:

Pros:

• More decentralized network
• More secure network

Cons:

• Requires large amounts of energy
• Wasted computing power

Proof of Stake is at least a more energy efficient way to essentially accomplish the same goals. However, there are a few hang ups for this system as well.
Proof of Stake limits who is able to help secure the network by requiring miners to hold a certain amount of its coins in their wallet.

Some Proof of Stake coins have been pre-mined, and some have even been “significantly pre-mined", meaning the individuals who created the coin were able to mine coins before going public.

This can very easily result in whales, or individuals who hold large amounts of a coin, who then qualify to run a large number of staking nodes.

A network that is already less decentralized thanks to this minimum coin requirement, could end up with a few wealthy individuals who would ultimately be able to control the network by running a majority of the staking nodes.

Pros:

• More energy efficient
• Better rewards for staking your coins

Cons:

• Less decentralized network
• less secure network

Proof of Stake is an advancement of the idea behind Proof of Work, and with it often comes other mechanisms that work to provide other services that enhance how the network runs.

These are called Masternodes and if done correctly, they can be a way to earn a passive income.

I’ll be covering masternodes and how to find affordable options in my next video so if this is something you’re interested in learning more about be sure to subscribe to this profile and keep an eye out for my next post.

Additional Reading/Sources:

2014 List of different POS coins and their staking percentages/payout periods
More recent list of POS coins
Article by Vitalik on POS systems
Potential downside of POS
Proof of Work vs Proof of Stake