Cryptocurrencies based on proof-of-stake: solana , cardano , polygon , chainlink , terra .
A blockchain based on proof-of-stake adds transactions in a different way. Here, a random person in the blockchain network is selected as responsible for validating the transactions.
Such a person is also called a validator. The person being selected to be the validator also receives a reward - but it’s not a newly minted coin, which is the case with proof-of-work, but instead of a fee, it comes from a pool of coins that already exists.
The validation work in proof-of-stake is then also compensation. The difference is just that the compensation isn’t always the issuing of new coins, which is the case with bitcoin, ethereum and dogecoin.
Let’s say you’d like to be selected as a validator.
The selection is a drawing of lots, where one lot equals one coin. Your coins aren’t automatically in the draw, and you will only enter the draw if you stake your coins.
For example, if you have 500 coins, you’re staking 300 of them in the draw to become a validator. Let’s also say that there’s 10,000 coins in total in the network.
You then have a 300/10,000th chance of being selected - or a 0,3% chance.
The work as a validator is a demanding piece of work. You need to know a lot of advanced programs and codes - that’s why it’s not anyone who can handle this job.
That’s why you can pool your coins together with a competent validator and increase your chances of being selected together in a proof-of-stake blockchain. Such a pool is also called a stake pool.
Helena works as a validator on solana’s blockchain.
She has 500 coins herself which she stakes in the draw. She then has a 0,5% chance of being selected on her own.
You know Helena is a competent developer, and you trust her validation. That’s why you’d like to support her in being selected, which is why you chose to stake some of your coins in Helena’s name.
You’re staking 300 coins - so now, Helena has 800 coins to her name, and has increased her chances to 0,8%.
When Helena gets selected, she completes the work, and is then rewarded with an amount of coins. The reward is also spread out over the pool of people who have staked coins in Helena’s name.
In this way, both Helena and the people who supported her, receives economic compensation.
Tip: You can read more about how big the reward for staking solana coins is on StakingRewards.com .
So, what if Helena tries to trick the network?
If Helena makes a fraudulent validation - such as tricking the network out of money - her 500 coins are confiscated. But your 300 coins which you staked in Helena’s name also risk being confiscated.
This is where your trust in the validation plays a part. Do you trust Helena enough to stake your coins in her name?