WEBVTT

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In cryptocurrency,
Proof-of-Stake, or POS,

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is a consensus mechanism
for processing transactions

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and creating blocks
in a blockchain.

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A consensus mechanism is
a way to validate entries

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into a distributed database.

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It keeps the database secure.

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With cryptocurrency,
this database

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is called a blockchain.

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The consensus mechanism
secures the blockchain.

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Proof-of-stake was
designed as an alternative

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to Proof-of-Work, or POW.

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Proof-of-work was the
original consensus mechanism

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used to validate a blockchain
and add new blocks.

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Consider a proof-of-work
cryptocurrency like bitcoin.

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Miners earn bitcoins
by verifying

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transactions and blocks through
computational calculations.

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With larger groups
of computers that

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have higher computational power,
you can mine more bitcoins.

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But mining has expenses,
like electricity and storage.

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These costs can run high.

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There can be other impacts
to the environment, as well.

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The energy required to
mine also usually affects

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the pricing and profitability
of the cryptocurrency itself.

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The proof-of-stake mechanism
tries to solve these problems.

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It substitutes staking
for computational power.

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With proof-of-stake, an
individual's mining ability

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is randomized by the network.

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Owners stake a specific
amount of coins,

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offering them up as collateral
for a chance to mine.

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Miners are then
selected randomly

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and mine through validating
block transactions.

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Proof-of-stake reduces the
amount of computational work

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needed to verify transactions.

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Because miners no longer need
massive amounts of hardware,

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there's less energy consumed.

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Proof-of-stake also makes
the network less vulnerable.

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There are fewer
incentives for an attack

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because of how the
compensation is structured.

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