The Proof of Stake Consensus Mechanism
Due to their decentralized infrastructure, cryptocurrencies require their own means of confirming transactions, which also means that they lack the centralized oversight of traditional financial institutions. The term “proof-of-stake” refers to one of several means that can be used to verify a transaction.
The proof-of-stake consensus mechanism was created to address some of the underlying issues of its predecessor, the proof-of-work consensus, which is still used by Bitcoin. It is a cryptocurrency consensus mechanism used for transactional processing and is utilized for the creation of new blocks within blockchains. Furthermore, it is responsible for the validation of entries within the distributed database that is known as a “blockchain,” i.e., it maintains the security of the network. In other words, proof-of-stake aims to do the same as its predecessor, but with the added benefit of low energy consumption.
Energy consumption has been a major criticism of the proof-of-work consensus mechanism that is used by popular cryptocurrencies like Bitcoin and Ethereum. Consequently, the amount of energy consumed by such major cryptocurrencies is a must if they want to maintain network security. For instance, security management and decentralization take up an energy output of a whopping 73.2 TWH annually on Ethereum. This energy consumption is equivalent to that of a medium-sized country such as Austria.
