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Proof of Stake (PoS)

In simple terms

Proof of Stake is a way for a blockchain network to agree on which transactions are real, similar to how a group votes on a decision. Instead of doing complicated math problems, people who own the cryptocurrency put up some of their coins as a promise to be honest—if they cheat, they lose their coins.

Definition

A consensus mechanism where validators are chosen based on how much crypto they stake. Used by Ethereum.

In depth

Proof of Stake is a consensus mechanism where validators secure the network by locking up (staking) cryptocurrency as collateral. Validators are selected to propose new blocks based on their stake size and other factors, and they earn rewards for proposing valid blocks. If a validator acts maliciously or proposes invalid transactions, their staked coins are slashed as a penalty. This approach is more energy-efficient than Proof of Work since it eliminates computationally expensive mining and instead aligns validator incentives with network security through economic penalties.

How does Proof of Stake (PoS) work?

Instead of spending electricity, participants lock up the network's own coins as collateral, becoming validators. The protocol pseudo-randomly selects a validator to propose the next block, weighting selection by stake size. Other validators check the proposal and attest that it follows the rules. Once enough attestations accumulate, the block is finalized. Honest work earns newly issued coins and fees. Misbehavior such as proposing two conflicting blocks triggers slashing, where the protocol destroys part of the offender's stake and ejects them. Security comes from the fact that attacking the chain means forfeiting capital held on that same chain.

An example

Ethereum requires 32 ETH to run a solo validator. At an illustrative annual reward rate of three percent, that stake would generate about 0.96 ETH over a year. Actual rates float with how much total ETH is staked and how busy the network is, so the figure changes constantly. If the validator went offline for long stretches it would leak a small amount instead, and a slashable fault would cost considerably more.

Figures are illustrative only.

What beginners get wrong

  • Staking rewards are paid in the same coin you staked, so the value of those rewards moves with that coin's price.
  • Many chains impose an unbonding or exit queue, meaning staked funds can be locked and unsellable for days or weeks.
  • Delegating to a validator does not hand over ownership, but a slashed or persistently offline validator can still reduce a delegator's balance.
  • Advertised staking percentages are variable estimates, not fixed interest, and platforms sometimes quote them before deducting their own commission.

Related terms

Part of

What is cryptocurrency, and how does it work? — the subject page for cryptocurrency basics, with all 23 of its definitions in one place.

Educational only — not financial advice.