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Crypto has been criticized for its high energy consumption. The proof-of-stake consensus mechanism has emerged as an environmentally friendly solution.
Cryptocurrencies are digital assets built on blockchains—digital ledgers distributed across a network of computers. Blockchains are decentralized, meaning that a central authority, such as the Bank of Canada or the Canadian government, does not control them. To function, all blockchains require an automated decision-making process—known as a “consensus mechanism.” Proof-of-stake (PoS) is one of two popular consensus mechanisms (the other being proof-of-work, or PoW).
In proof-of-stake, coin holders pledge or lock up their coins for a period of time while they contribute to the computational power the network needs to validate transactions and create new blocks. With certain coins, like ethereum, the more coins you stake, the higher your chances of earning rewards—so investors are incentivized to stake their coins to get rewards in return.
With PoS, a blockchain can achieve consensus without needing specialized mining hardware or large amounts of electricity. Ethereum, the crypto with the second-largest market share after bitcoin, started using PoS in September 2022.
Example: “As a supporter of the environment, Safia likes how proof-of-stake can make cryptocurrencies more sustainable by drastically reducing the electricity needed to run a blockchain.”
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