What is Proof of Stake (PoS)?
Proof of Stake is a consensus mechanism in which validators lock up the network's coin as collateral to earn the right to propose and verify blocks. Validators who break the rules can lose part of their stake.
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Proof of Stake (PoS) is a consensus mechanism in which validators lock up the network’s native coin as collateral in exchange for the right to propose and verify blocks. Security comes from economic stake rather than computing power: a validator who breaks the rules can lose part of what they locked up. Ethereum, Cardano, Solana and Avalanche are among the major networks that use it.
How does proof of stake work?
Instead of miners, PoS networks have validators. On Ethereum, the process works like this:
- A would-be validator deposits 32 ETH into a dedicated deposit contract and runs validator software.
- Time is split into 12-second slots, and in each slot the protocol pseudo-randomly picks one validator to propose a block.
- Committees of other validators publish votes, called attestations, confirming that the block is valid.
- Blocks that gather enough votes are finalized at regular checkpoints, after which reversing them becomes prohibitively expensive.
Validators that do their job earn newly issued ETH plus a share of transaction fees. Validators that go offline miss rewards and incur small penalties.
Not every PoS network works the same way. Cardano relies on stake pools under its Ouroboros protocol, Polkadot lets token holders nominate validators (Nominated Proof of Stake), and Solana holders delegate stake to validators. Validator counts, minimum stakes, reward rates and penalty rules all vary from chain to chain.
How did Ethereum move to proof of stake?
The idea is not new: Peercoin, launched in 2012, was one of the first projects to combine PoW with PoS. Ethereum launched its proof-of-stake Beacon Chain on December 1, 2020, and merged its main network into it on September 15, 2022, an event known as The Merge. According to the Ethereum Foundation, the switch cut the network’s energy use by roughly 99.95%. Staked ETH became withdrawable with the Shapella upgrade in April 2023.
How can you take part in staking?
Locking coins on a PoS network to earn rewards is called staking. The main options are:
- Running your own validator: the most independent route, but it requires technical skill, reliable uptime and, on Ethereum, 32 ETH.
- Delegation: on networks such as Cardano and Solana, you delegate coins to a validator and share its rewards.
- Liquid staking: you receive a tradable token representing your staked assets, which adds smart contract risk.
- Exchange staking: the simplest route, but the exchange controls your assets.
Staking rewards are not like a savings account rate. They are paid in the token itself, so a 4% annual reward will not offset a 20% fall in the token’s price. Our guide to Ethereum staking covers the details.
What is slashing, and what are the risks of PoS?
Slashing is the penalty for provably harmful behavior, such as signing two different blocks for the same slot. The offending validator loses part of its stake and is forcibly removed from the validator set. Simply being offline is not slashing. Broader criticisms of PoS include stake concentrating in a few large providers, the argument that it rewards those who already hold the most coins, and a rulebook that is more complex than proof of work.
Frequently asked questions
How is PoS different from PoW?
Under proof of work, the right to add blocks comes from computing power; under PoS, it comes from locked-up collateral. PoS needs no mining hardware and uses far less energy.
Can I stake ETH without 32 ETH?
Yes. Staking pools, liquid staking protocols and exchanges let you participate with smaller amounts, each with its own counterparty and technical risks.
Where do staking rewards come from?
Rewards usually come from newly issued coins and from transaction fees paid by users. Because new issuance increases supply, the real value of a staking reward should be weighed against the network’s inflation rate.