Proof-of-stake

Proof-of-stake (PoS) is a type of algorithm by which a blockchain network aims to achieve distributed consensus. Unlike Proof-of-Work (PoW) based cryptocurrencies (such as bitcoin), where the algorithm rewards participants who solve complicated cryptographical puzzles in order to validate transactions and create new blocks (i.e. mining), in PoS-based cryptocurrencies the creator of the next block is chosen in a deterministic (pseudo-random) way, and the chance that an account is chosen depends on its wealth (i.e. the stake). In PoS cryptocurrencies the blocks are usually said to be forged (in the blacksmith sense of this word), or minted, rather than mined. Also, usually all the coins are created in the beginning and the total number of coins never changes afterwards (although there are some other versions of PoS where new coins can be created). Therefore, in the basic version of PoS there are no block rewards (e.g. as in bitcoin); so, the forgers take only the transaction fees.

Peercoin was the first cryptocurrency to launch using proof-of-stake. Other prominent implementations are found in ShadowCash, Nxt, BlackCoin, NuShares/NuBits, Qora and Nav Coin.Ethereum has planned a hard fork transition from PoW to PoS consensus. Both Peercoin and Decred hybridize PoW with PoS and combine elements of both consensus approaches in an attempt to garner the benefits of the two systems and create a more robust notion of consensus.

Proof-of-stake must have a way of defining the next valid block in any blockchain. Selection by account balance would result in (undesirable) centralization, as the single richest member would have a permanent advantage. Instead, several different methods of selection have been devised.

Nxt and BlackCoin use randomization to predict the following generator, by using a formula that looks for the lowest hash value in combination with the size of the stake. Since the stakes are public, each node can predict - with reasonable accuracy - which account will next win the right to forge a block.

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Wikipedia