What is Proof of Stake? How it works (Animated) + Ethereum 2.0 Upgrade! - Bilingual Subtitles
We have actually created a video on what is staking, where we describe the proof of stake mechanisms, the risks involved, and the benefits.
But it was actually our second video on this channel, we made a pretty big mistake.
Yes, as all the commenters have noticed, audio is only working on one side.
As a way to apologize,
we have decided to cover a very similar topic of staking in general where we discuss some other parts that we skipped
over in that video and we promise this video will give satisfaction to both of your ears.
We hope that you can forgive us and maybe leave a like on this video if you've learned something at the end.
Welcome to Whiteboard Crypto,
the number one YouTube channel for crypto education and here we explain the topics of the cryptocurrency world using analogy,
stories, and examples so that people like you can easily understand them.
In this video,
we are going to explain what proof of stake is,
how it differs from proof of work, and some other interesting ideas that we found other YouTube videos have not covered.
Let's dig in.
First to understand proof of stake, you really need to understand proof of work.
As we have said, And many, many times on this channel, you guys seem to learn best through analogies.
So we're going to use one.
Imagine that there's a foot race and a bunch of people line up to the starting line.
There are people that are six foot tall,
there's people that are four feet tall,
there's guys,
there's girls,
some people have injuries,
others have just drank a red bull,
some are We're a
to everyone at this race line boom goes the gun and everyone starts running whoever wins this race
gets a big reward here's something important though there's no second or third place trophies
there's no participation trophies either this is kind of how proof of work actually works
except instead of one race there are continuously races back to back you don't have to be a
genius to know whoever wins one race will likely win a bunch of others,
simply because they may be in the best shape with the best conditioning.
However, with proof of work, there is some luck involved.
So even the small players,
the dude who is on crutches at 75 years old, does have a chance to win, even if it's a long ways away.
He's still got a chance.
For example,
maybe everyone a head of him get struck by lightning and they have to go to the hospital and so that 75-year-old
on crutches wins.
Nevertheless, when it comes to proof of work, instead of runners, miners use computers to do the work.
It's actually called proof of work because they are working really hard to prove that some computation is true.
Now we actually have a proof of work video that explains exactly what these computations are if you're interested.
In the better computers you have and the more computers you have, the more likely you are to win that block.
Now, let's move on to Proof of Stake, because that's what this video is about.
We still have all of those runners lining up to the race.
However, this time they don't all run.
Instead, we pick one runner to run.
And when they reach the finish line, they get rewarded.
There's a catch though.
To be at the starting line, to even get picked, you have to put up what is called a steak.
A steak is a sum of money that you put up so that if you do something bad,
like for example, if you don't finish the race, your steak can be taken away as a punishment.
Why?
Well, this is so that you don't do bad things.
Now, at this point in the video, we already know you have some questions, so let's dive in.
First of all, what happens if these people do not finish the race?
Because there's the big important question of what if we pick someone to run, but they never finish the race?
Meaning what if we select them to validate a block, but they give up?
Well, since they signed up to be a validator and they did not validate, either because maybe
Maybe they didn't want to,
or the node was set up incorrectly, or an internet connection issue, or maybe because their computer simply was turned off.
We what is called slashing them.
Slashing is a term used when you take away some of their stake.
You know, some of those coins that they initially locked up.
If you don't want to lose your coins, you better be a reliable node.
And this way, we can say that the- people that are validating blocks are reliable.
Another you might have is how do they get picked?
Every proof of stake model seems to have a few different factors that they combine to pick each validator to validate the block.
Some models take into consideration how many total coins they have state.
In theory, the more that you stake, the more trustable you should be.
other models taking into consideration how long you have been staking.
For example, people who have staked for a long time ought to be reliable and trustable.
Furthermore, some models even take randomness into consideration so that there's a fair way to get picked.
Most models actually combine all of these.
And if you want to know the specifics of a specific coin, you'll have to read this specific blockchain's white paper.
Another question that is worth asking is how short or how long is the race?
Well, in proof of work, we make the race longer the more people that run.
In other words, we make the work harder and harder as more people try to race.
This way, blocks aren't solved too quickly, but they also aren't solved too slowly.
However, in the In terms proof of stake, the race, or the validation computation, is shortened so
much so that a single computer can actually solve it fairly quickly.
In some cases, even a modern smartphone could solve the problem.
Take this in comparison to millions of expensive bitcoin miners out there mining for 10 minutes to solve a single block.
The last important question.
is what if someone cheats,
if someone cheats or if they perform any type of fraud,
like maybe they give themselves free coins,
or maybe they make a fake transaction, they are then fact-checked, and if the fact-check is proven wrong, then their stake is removed.
Now this is actually the purpose of staking in the first place,
to make sure that people aren't joining and just sitting themselves a bunch of recrypto.
Instead we make it so that anyone can fact check a validator's block and if they find an issue there's a way to report it and then that validator will lose some,
if not all, of their staked coins.
So by now you probably have a pretty good understanding of how proof-of-stake works and maybe why it's better than proof-of-work.
However, let's get into the transitions.
Proof of Work is a very successful consensus mechanism simply because,
in theory, anyone can join the network, even if they have a really small or less powerful computer.
However, as the network grows, the cost to join becomes even more, because those small
less powerful computers can still join the network, but they're playing a luck game.
They could still win.
But it's unlikely the idea is if you have an old laptop laying around you might as well mine, right?
That's the idea Well,
it is actually a good idea to move from proof of work to proof of stake when a network grows very large You don't want to do it too early because then the coin holders who
stake their coins might be able to join together and actually perform What it's called a 51% analysis?
attack, and you don't want to do it too late because there may be lots of people wasting
massive amounts of electricity and the use of those computers that is actually one of
the reasons Ethereum is moving from proof of work to proof of stake, because they are wasting a ton of electricity.
Ethereum actually at the sweet spot right now.
There are enough people interested that there's no sizable whales out there which Which means a risk of 51% attack is much lower.
If actually started off as a proof of stake mechanism, it may have not become so successful.
In fact, this channel was started because I got interested in Ethereum mining.
I could use my computers to earn useful money.
This led me down the rabbit hole of how to learn how it all worked,
and then my friend Nico and I started sharing it with you.
So a lot of coins don't necessarily start out at proof of stake,
they start out as proof of work, and then when they get large enough, they to proof of stake.
So this begs the question, will Bitcoin change to proof of stake?
In short, no.
The of Bitcoin is not coded to switch its consensus mechanism from proof of work to proof of stake.
And the creator, Satoshi Nakamoto, is actually unknown and remains unknown so the code will stay unchanged.
The way that Bitcoin could switch to proof of stake is through what is called a fork.
And if you don't know what a fork is, definitely subscribe because our video on forks is coming out pretty soon.
So what would it take to change Bitcoin to proof of stake?
In fact, Bitcoin is only changed if there is a fork.
Now basically a fork is a change in code and for that code to be accepted to be changed,
we would need 51% of everyone in the Bitcoin network to agree to the change for it to actually change.
If 51% of the entire network agreed, the code that is running Bitcoin could change to proof of stake.
But that is highly unlikely, because a large majority of the Bitcoin community wants to keep the code as original and pure as possible.
In a sense, they want to keep the code the same as it was written, as much as possible other than fixing major bugs.
Now, let's talk about economics, because there are economics involved with proof of work and proof of stake.
In proof of work, you are basically investing in computer hardware and electricity.
Now incentivizes people to find a way to get cheaper electricity that we hope is cleaner,
but in reality there's no reason that miners should use clean energy unless it's more affordable.
In terms of computer hardware, we saw what profitable ethereum mining actually did to graphic card prices.
In fact,
prices of GPUs that are a few years old are higher than the original MSRP that they sold at simply because miners could
earn such a high return.
This the growth of faster computing and the increase of production for equipment manufacturers.
Improve of stake, however, what is incentivized?
Well, to become a miner, you'd simply have to buy the coin.
You do have to have some specific hardware, but that's usually not that expensive to buy.
So instead of investing in the hardware and electricity,
you are actually investing in the native coin itself,
which, by supply and demand, would put a lot more demand on the coin since it can actually produce an income.
This means switching from proof of work should increase the price of a coin by inherently the coin.
Apparently, the increasing the value of what that coin can do.
So lastly, we want to talk about something called Delegated Proof of Stake, which is like Proof of Stake's cousin.
Instead of setting up a validator node yourself,
hoping that your computer stays online all the time and that your internet connection is reliable,
you can actually stake your coins and then use your voting power to delegate to someone else's who has that validator node set up correctly.
This you can vote without needing special equipment or knowledge.
Delegated Proof of Steak has its benefits and its drawbacks,
and if we get enough comments on this video about it, maybe we'll create a specific video on it.
I think that about wraps it up for this video on Proof of Steak.
If you want to learn some more, you can go check out our other video with only one side of audio.
called what is staking thank you guys so much for watching this video we hope
that you've enjoyed it we really hope that maybe you've learned something
new and most of all we hope to see you in the next video
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