Proof of stake (PoS) is a consensus mechanism that allows users to become network validators by locking up cryptocurrency. This, instead of mining computers and burning electricity, as seen in proof of work (PoW).

PoS validators add new blocks and may receive rewards from the network. If they act maliciously, poorly, or go offline, they risk losing a portion of their stake through a penalty called slashing.

It’s become a widely adopted model for a majority of Layer-1 (L1) blockchains.

Here we’ll explain how Proof of Stake works, how it differs from Proof of Work, its risks, and what it looks like in 2026.

Key takeaways

• Proof of Stake (PoS) selects validators depending on the amount of cryptocurrency they stake, not computing power.

• Validators may receive protocol rewards, but can also face penalties and lose portions of their stake for poor performance.

• PoS uses a fraction of the energy required by PoW.

What is proof of stake?

Proof of stake is a way for a blockchain to finalize which transactions are valid and what the state of the ledger should be without the need for mining hardware.

Instead of buying specialized hardware, burning energy, and competing for block rewards, participants lock up their own cryptocurrency as a stake. The amount can vary depending on the network.

The network then chooses validators at random, though the more you lock up, the more likely you are to be chosen. The selected validator then adds the next block, and everyone else checks its accuracy.

This system is referred to as a consensus mechanism. It’s what keeps blockchain systems running securely and fairly according to network rules. Bitcoin, for example, uses PoW as its consensus mechanism.

How does proof of stake work step by step?

Here’s how PoS works in simple steps:

1. A user locks (deposits) their crypto tokens into a specialized smart contract and becomes a validator.

2. The network randomly selects validators according to its consensus rules, often taking stake size into account.

3. The chosen validator proposes a new block or attests (votes) that another block is correct.

4. Other validators on the network check and agree on the block.

5. Once confirmed by enough validators, the finalized block is added to the chain.

6. The validator may receive protocol rewards.

Proof of stake vs proof of work

Here is a side-by-side breakdown of how the two main consensus mechanisms work:





Slashing and validator risk

Slashing is the penalty system that keeps validator operators in check. If a validator goes offline for too long or signs two conflicting blocks (double-signing), they can lose a portion of their stake.

On Ethereum, a minimum of 32 ETH tokens is required to become a validator. As a result, slashing can result in significant penalties, but it incentivizes validators to run reliable hardware and maintain a 24/7 online connection. 

The Merge: Ethereum’s switch to PoS

In September 2022 Ethereum completed “the merge” and moved from PoW to PoS. 

This change cut the network’s energy consumption by around 99.95%. At the time, users barely felt the difference. But this brought on changes that allowed for thousands of validators, not miners, to keep the chain running. 

This paved the way for future scalability upgrades and Layer 2 adoption.

Variations: delegated PoS, liquid yield, and other flavors

Some blockchains use delegated proof of stake (DPoS), which is where users vote on “professional” validators instead of running their own. Tron is a major network that has taken this approach.

Other networks allow users to keep their tokens liquid through special derivative cryptocurrency tokens. They make it more accessible, but add extra layers and smart contract security risks.

The idea remains the same at the core: users front capital to help secure the network and may receive protocol rewards.

Bottom line

Proof of stake is a consensus mechanism designed to reduce energy consumption. 

It’s made blockchain significantly more efficient compared to the PoW model, though it does have its trade-offs in terms of security, concentration risk, and penalties. This model powers Ethereum, Solana, Cardano, and a growing number of major and new networks. 

FAQ

What is proof of stake in simple terms?

Proof of stake is a way for a blockchain network to reach an agreement on the ledger’s state by requiring users to stake their own cryptocurrency as collateral. Validators selection typically takes stake into account, after which they propose and validate new blocks.

How does proof of stake work?

Users lock a set amount of cryptocurrency to become validators. The network selects one based on a combination of stake and protocol-defined mechanisms. The chosen validator proposes or attests a new block. The rest of the validators check the work and add the new block, the chosen validator earns yield. Incorrect data or poor performance can result in penalties for the validator.

What is the difference between proof of work and proof of stake?

Proof of work uses specialized computers and massive amounts of energy to reach consensus and produce new blocks, Proof of stake uses locked-up crypto as security, making it incredibly energy-efficient and easier to join, but shifts capital risks from electricity to crypto.

Is proof of stake better than proof of work?

In terms of security, proof of work has a notable track record, but proof of stake generally uses less energy and has different participation requirements. Neither is perfect and there are trade-offs to consider.

What is slashing in proof of stake?

Validators face penalties (slashing) if they go offline for too long or behave poorly. This incentivizes validators to maintain high operational standards.

How much ETH do you need to be a validator?

A minimum of 32 ETH are required to run your own validator on Ethereum. Staking pools and delegation may allow participation with smaller holdings. 

Which cryptocurrencies use proof of stake?

Major cryptocurrencies using PoS include Ethereum, Solana, Avalanche, BNB Chain, Cardano, Tezos, Cosmos, Algorand, and Polkadot. Each takes its own approach but follows the core idea of staking instead of mining.



Investing in crypto‑assets is associated with risks, including high volatility and the potential loss of capital. Inform yourself thoroughly about the risks before making an investment decision. The information provided in this article is strictly for educational and informational purposes and should not be construed as financial or investment advice.