Blockchain Technology for Kids: staking a crypto claim

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So far we've been looking at blockchain technology, where nodes like Nancy mine currency through a “proof of work” system. But there are other ways for people to mine currency. One that we're familiar with here on Steemit is a “proof of stake” system (PoS).

With PoS, instead of proving each transaction is “true” gossip, and that Jack actually owns the coin he's trading, Jack will need to prove he's invested in the currency-trading platform. Jack needs to show that he has a financial stake in what happens there. In a proof-of-stake system, he's empowered to create new currency if he's invested in that currency. How much currency Jack can create is determined by how much he currently holds.

On Steemit, that's shown by how many vests of STEEM Jack holds. To inflate the currency on Steemit, Jack can upvote a post or comment made by Jill. His upvote creates new currency to be paid out at a future time to both Jill, as the author, and to himself, as the curator.

A Steemit witness will then record the upvote transaction. The witnesses do this with their computers by creating blocks for the record on the Steemit blockchain. A witness gets their power to do this not from their own stake in the platform, but by receiving votes from others using the platform. So votes with greater stakes behind them are worth more to a witness.

(Of course, if Jack becomes a witness, he can vote for his own witness. This would make his stake on the platform valuable to his own witness self-vote, but that's the only way that personal stake in the platform empowers a witness.)

Another Steemian, Jennifer for example, can disapprove Jack's upvote transaction with Jill by downvoting it. But Jennifer's ability to disapprove any transaction is limited by her own stake in the platform – how many vests of STEEM Jennifer currently holds. If she holds the same amount or more than Jack holds, her downvote can wipe out the currency inflation from Jack's upvote.

So in a proof-of-stake system, if you can show that you have a big stake, you can make a big upvote and create a large amount of new currency. And it's all done without the hashing and computer processing to show proof of work, as with bitcoin.

Many thanks to @jrswab, a Steemit witness who explained and clarified much of this information! You can vote for @jrswab as witness by clicking here and typing “jrswab” in the vote box at the bottom of the page.

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Earlier installments of this series can be accessed here:

Part 1 | Part 2 | Part 3 | Part 4

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