What Is Proof-of-Stake Cryptocurrency?

Proof-of-stake cryptocurrencies are digital assets that use a method known as staking rather than mining to ensure the legitimacy of transactions reported by users. Staking is a way to earn passive income by committing cryptocurrency to aid in the operation of a blockchain network.

The main alternative to proof-of-stake technology is proof of work. The first and most valuable cryptocurrency, Bitcoin, is an example of crypto that uses proof of work, relying on mining rather than staking.

Proof-of-stake cryptocurrencies have some advantages. For example, staking uses dramatically less energy than mining, and the financial barriers to entry with staking can be lower. However, proof-of-stake cryptocurrencies also carry risks, such as possible losses related to mistakes or fraud.

Understanding ‘consensus mechanisms’

Proof of stake is known as a blockchain “consensus mechanism.” Here’s what that means:

Because most cryptocurrencies have no central authority keeping track of…

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This article was written by Andy Rosen and originally published on www.nerdwallet.com