Proof of Stake (PoS) is a consensus algorithm that helps the distributed parties of a network come to an agreement on the state of all transactions. Proof of Stake was first proposed by Sunny King (a pseudonym) of Peercoin as an alternative to Bitcoin’s Proof of Work consensus mechanism. Traditional Proof of Stake works by giving token holders the ability of adding new blocks to the blockchain and rewarding them for doing so, if their block ends up in the majority blockchain. Who gets to add the next block is usually determined in a random fashion, weighted by the number of ‘stakes’ that are online at the moment.
Proof of Stake consumes less electricity than proof of work systems. It also ties in the network’s security to the stakeholders themselves, and is argued to reduce chances of a 51% attack, because the attacker in this case would need to buy up half of the cryptocurrency and is therefore not incentivized to destroy it. However, it also suffers from certain drawbacks and possible attacks, such as the ‘nothing-at-stake‘ problem. Newer types of Proof of Stake systems deviate from the traditional proof of stake system. These include the Delegated Proof of Stake (which uses are voting mechanism to determine which delegates can produce blocks, thus providing greater blockchain scalability), and coin-age based Proof of Stake.