Operates on the principle that ‘everyone’ can win the chance to add a block to the blockchain, by using a system not much unlike a lottery. Used by: Ethereum (Casper), Peercoin, NxtCoin, BlackCoin.
- On a PoS blockchain, all coins are created in the beginning, and never change. There is no mining. Instead, a new block will be added by a randomly picked node.
- The picking of a random node works much like a lottery: The blockchain network consists of thousands of nodes. Each of these nodes can choose to invest a certain amount of coins (stake) into a deposit, which is basically like buying lottery tickets. While these coins are in deposit, they are not spendable.
- The more coins a node invests, the higher its stake; the higher the chance of winning the ‘lottery’ 1. The winner is determined by the consensus algorithm (a ‘lottery machine’).
- The lottery’s prize is the rights to collect waiting transactions into a block and collect the transaction fees.
- The winning node provides the new block with a reference to the preceding block and is then broadcast, upon which all nodes will verify the transactions inside and add the block to their copy of the blockchain.
- As there is no computational-intensive mining with Proof-of-Stake, if it where to receive an energy label, it would rate A+ for very energy efficient.
- An attacker who wants to make a fraudulent transaction would need over 50% of coins to process the required transactions reliably; buying these would push the price up and should make such an endeavour prohibitively expensive.