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Proof-of-Stake is a blockchain consensus mechanism where transaction validators are selected based on token ownership. It was first proposed in 2011 as a more energy-efficient alternative to Proof-of-Work.
It was first used to power a blockchain in 2012, but the most notable event was Ethereum’s switch from Proof-of-Work to Proof-of-Stake in 2022.
To be able to validate transactions and create new blocks, users have to lock up a certain amount of their cryptocurrency as a "stake", hence their name. The more they stake, the higher their chances of becoming validators.
Stakers act as corporate accountants. They verify transactions, confirming their legitimacy and ensuring they follow the network’s rules.
They also create and add new blocks and vote on network changes.
Stakers earn rewards and transaction fees proportional to their staked tokens.
However, rewards aren’t guaranteed. Adding a block with inaccurate information can be penalized by losing some of the staked tokens.
Staking alone is challenging and requires sufficient capital to succeed in earning rewards.
However, staking through an exchange allows you to earn rewards regardless of your capital or how long you have been staking.
Hint: Its blockchain is a preferred choice for many altcoin projects.