What Is Proof of Stake?
Proof of Stake (PoS) is a consensus mechanism where block validators are selected based on the amount of cryptocurrency they've locked up (staked) as collateral. Unlike Proof of Work, which requires computational power, PoS achieves consensus through economic stake — validators risk losing their staked tokens if they act dishonestly.
How Proof of Stake Works
Validators deposit (stake) a minimum amount of the network's native token. The protocol selects block proposers using algorithms that consider stake size and other factors like randomization and age of stake. Validators who propose valid blocks earn rewards; those who try to cheat lose part of their stake (slashing).
Why It Matters for Traders
PoS creates direct yield opportunities through staking — earning 3-8% APY for securing the network. Staking economics also affect token supply dynamics: staked tokens are locked and removed from circulating supply, potentially reducing sell pressure. Staking ratio (percentage of supply staked) is a fundamental metric for PoS token analysis.