What is Proof of Stake & Proof of Work

Proof of stake is basically a consensus algorithm that helps to function the blockchain. The proof of stake network outlines itself with a bunch of different nodes, each node contains acertain amount of the token that the blockchain consists of. So, what is a node you may ask? A node is a computer on the network that has a complete copy of the entire blockchain. A blockchain contains of several different nodes that act as validators for the transactions. So, for instance, a transaction occurs, that transaction propagates to all the different nodes until a consensus are made.

“I have heard about mining and proof of work, what is that and is there any different from proof of stake?”

The difference between proof of work and proof of stake is that in proof of work the miners validate the block by mining or (guessing the nonce) to enable a new block to be minted. “Nonce you say, what is that?” A nonce is often referred to as the “cryptographic puzzle” that needs to be solved in order to mine crypto that use Proof of work as a consensus algorithm. If we take bitcoin mining for example, the miners are guessing an extremely large number, if you are guessing the right one, you will be rewarded by the block reward, hence you get new bitcoins.

However, in the proof of stake system the validation is distributed randomly to one of the nodes in the network, which must validate the transaction. You basically chose where the next block should be added, the consensus is at the longest chain and that is also where you should put the block in order to participate accordingly. If the transaction does not confer with what the consensus is in the network, that nodes staked tokens will be slashed, this creates an economic incentive for the user that has staked his/hers crypto to act in a non-malicious way, this is also called crypto economic security.

Each time your node gets to validate, you will gain the block reward for that block which contains tokens of that specific chain, if we take Ethereum as an example, you will get your reward in Ether. Your mining power or the amount of validation you will be eligible for, will correlate with how many nodes you run, so for instance if you are running 4% of the nodes in the network, you will be entitled to 4% of the validations. This is since all the validations are distributed randomly.

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