How it works
Validators lock up tokens as a security deposit. The network’s protocol pseudo-randomly chooses one validator per block to propose the next block, weighted by stake size. Other validators verify and attest to the proposal. If the chosen validator double-signs, goes offline, or breaks the rules, the network burns part of the staked deposit. Honest validators earn protocol rewards plus transaction fees.
Example
Ethereum became proof of stake in September 2022 (the Merge). Becoming a solo validator requires 32 ETH locked up. Smaller stakers join staking pools or use liquid staking tokens like stETH. The protocol pays about 3 to 4 percent annual yield to validators, funded by ETH issuance plus user fees. Misbehaving validators face slashing penalties ranging from 1 to 16 ETH per offence.
Why it matters
Proof of stake replaces the computational arms race of proof of work with economic skin in the game. It uses about 99.9 percent less energy than equivalent proof-of-work security and lets ordinary holders earn yield by securing the network. The trade-off is concentration risk: large stakers and centralised pools accumulate influence over consensus. Decentralisation depends on how diffused stake is across independent operators.
