How proof of stake works
Proof of stake selects who produces the next block in proportion to the cryptocurrency each validator has locked up as collateral. Instead of burning energy on a puzzle, validators put capital at risk: produce honest blocks and earn a yield, misbehave or go offline and part of the stake is slashed. The economic skin in the game replaces the electricity cost of proof of work as the thing that makes attacks expensive.
Worked example
A validator locks the network’s minimum stake and runs reliable infrastructure. For confirming valid transactions it earns a yield, often 3 to 6 percent a year. If it signs conflicting blocks or stays offline during its slot, the protocol slashes a portion of the stake automatically. Smaller holders who cannot run a validator can delegate through staking and share the rewards and risks.
The trade-offs
Proof of stake uses a tiny fraction of proof of work’s energy and enables faster finality, which is why Ethereum and most newer chains use it. Critics argue it can concentrate influence among the largest holders. Both models are live and battle-tested; the right one depends on what a network optimises for.
Why it matters
A coin’s consensus model drives its issuance, energy story, and staking yield, all inputs to its fundamental case. When you hold or trade a proof-of-stake asset on Volity, the staking yield and unlock schedule are part of the picture, even if you trade the price rather than stake. Related: tokenomics.
Read the full breakdown in our crypto trading guide.
