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Last time, we explained how time-consuming puzzles are one way to solve the problem of cheating on the blockchain. That was called “proof of work”.
Today, we talk about “Proof of stake”, the other way that crypto technologies solve fraud.
Remember: Multiple computers on a blockchain validate one transaction, and if they agree, the transaction gets approved. But that also means: in theory, it would be easy to spin up thousands of fake validators and take over a network.
So how DO you make sure you trust the computers in the network? With “proof of stake” that simply happens by trusting those who actually own a lot of the token itself.
That’s like trusting a veterinarian who has 5 dogs, and not trusting another who doesn’t have any.
This makes cheating very expensive, because you’d have to hold a large portion of tokens to do so. And even if you try, other validators still have to agree with your results of the transaction, making it almost impossible for you to trick the system because they will see that your numbers are different. And to deter you even more, in many blockchains, you may lose some of your tokens if you produce wrong results.
And next time, we talk about the pros and cons of “Proof of work” and “proof of stake”.
Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.
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