What is Proof of Stake?
A consensus mechanism where validators lock up crypto as collateral to earn the right to confirm transactions and earn rewards.
What is Proof of Stake?
Proof of Stake (PoS) is a method for blockchains to agree on which transactions are valid, without needing energy-intensive mining. Instead of computers competing to solve puzzles, validators lock up (stake) a certain amount of cryptocurrency as collateral. They are then randomly selected to validate transaction blocks and earn rewards proportional to their stake.
How Ethereum Switched to Proof of Stake
In September 2022, Ethereum completed "The Merge" and switched from Proof of Work to Proof of Stake. This reduced Ethereum's energy consumption by over 99.9%. To become a full validator on Ethereum, you must stake 32 ETH (worth approximately Rs 65 lakhs at current prices). However, you can participate with much smaller amounts through staking pools.
How Indian Investors Can Earn Staking Rewards
- Exchange staking: Platforms like Binance and CoinDCX let you stake ETH, SOL, and other PoS tokens with no minimum and earn annual yields of 3-8%.
- Liquid staking: Protocols like Lido let you stake any amount of ETH and receive "stETH" in return, which you can still use in DeFi.
- Direct staking: If you hold 32 ETH, you can run your own validator node for maximum rewards and full decentralization.
Key Differences from Proof of Work
- No specialized hardware needed - you can stake from a laptop or through an exchange.
- Much lower energy use - far more environmentally friendly.
- Your stake can be "slashed" (partially destroyed) if you behave dishonestly or your node goes offline too often.
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