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Ayn Rand would love proof of stake.
Proof of stake is a consensus mechanism for decentralized ledgers. It lets computers scattered around the world keep the same database in the same confirmed state across many different locations at once, so it’s become a useful tool for a variety of emergent cryptocurrencies to maintain their operations successfully.
This gets niche and technical quickly, so it deserves a step back before we go deeper. We’ll start with where proof of stake came from, then we’ll get into how it works and why it’s an economic egalitarian dream come true.
Proof of stake emerged in 2011 to solve issues related to a different consensus mechanism.
“Proof of work” used to be the only game in town for maintaining blockchain consensus, but it wasn’t without certain issues. Success in a proof of work system is related to having lots and lots of processing power to mine new coins. Cryptocurrencies that depend on it (most notably Bitcoin) require lots of electricity to keep the network running. It only takes one correct guess-and-check calculation to successfully mine new coins, so that means all the electricity used in attempts to solve proof of work’s cryptographic puzzles with incorrect answers is just wasted. The community began calling for a different way to do things.
Proof of stake was first presented on the Bitcointalk forum as an alternative vehicle for preserving blockchain consensus without sucking up so much electricity. This system doesn’t care much about processing power, but instead pays attention to how much cryptocurrency a user holds. Their chances of successfully confirming transactions on the blockchain (and winning the reward for doing so) vary directly with how much cryptocurrency they hold.