The Proof of Stake concept began life as an alternative to the Proof-of-Work approach. It says that anyone can “mine” block transactions according to how many coins they possess. This means that a miner who possesses more Bitcoins has greater mining power. Peercoin was the first cryptocurrency to make use of the Proof of Stake approach, and it was followed by Shadow coin and Blackcoin. The main idea behind Proof of Stake was to fixing the problems that were inherent in the Proof of Work concept.

Any time a transaction goes through, information is put in a block with a maximum size of 1MB. This is then repeated across many computers in the network. Each node verifies the legitimacy of each transaction by using miners who resolve complicated mathematical problems. This is at the heart of the proof-of-work approach. As soon as the block has been verified it’s added to the blockchain.

Because mining users large amounts of electricity and computing power to perform these complicated calculations, miners have to sell their coins in exchange for fiat money. This could lead to a downward spiral in the prices of cryptocurrencies. The Proof of Stake method was created to address this problem. It will assign mining power depending on the number of coins a miner possesses. So instead of using energy to solve the PoW problem, the miner it’s only allowed to mine a percentage of transactions according to their ownership stake.