Proof-of-Stake (PoS) is a consensus mechanism used in blockchain technology to achieve distributed consensus or agreement among different nodes on the network. It offers an alternative to the traditional Proof-of-Work (PoW) consensus algorithm often used in blockchain-based networks.
Unlike PoW, which requires miners to solve resource-intensive mathematical problems in order to valid transactions, PoS requires users to stake a certain amount of their coins as collateral. Through this process, users essentially “bet” on which fork of the blockchain they believe will be the dominant one at the end of the consensus process.
As a reward for staking their coins, users are rewarded with newly-created coins or with transaction fees depending on their stake and how close their choice ended up being to the winning fork. It is because of this reward system that PoS is also often referred to as “staking”.
The Proof-of-Stake consensus algorithm aims to make the most out of existing resources by eliminating the need for high energy costs associated with PoW and make it more cost-effective. It also allows for improved scalability, meaning networks can have many more transactions processes in a given amount of time.
Finally, it is more environmentally friendly as it does not require large amounts of electricity like PoW does. The drawback is that often a user has to stake a relatively high amount of coins so that only people with high funds are able to participate in staking which could interfere with the concept of decentralization.