In 2008, in reaction to the global financial crisis and the collapse of the banking system, bitcoin was created by Satoshi Nakamoto, true identity unknown. Bitcoin was a digital currency that could be sent from one computer to another, anywhere in the world.

ENTER PROOF OF STAKE

While bitcoin had meanwhile found its place in the global financial system, the development of blockchain technology continued. Different protocols were invented to improve on bitcoin’s Proof of Work protocol. None of them really solved the outstanding issues, but there was an idea of a new protocol called Proof of Stake.

The technique or protocol to make mining bitcoin possible was called Proof of Work. Complicated calculations needed to be executed to create bitcoin, and the persons doing so where called Miners. There were some problems executing this protocol, one of which is the enormous energy consumption it takes to perform these calculations and also the inherent limits in the number of possible transactions on the network.

In Proof of Stake, no complex mathematical problems had to be solved anymore. Instead, the system and its actions would be validated by stakepools. A stakepool would be a protocol on the blockchain that allows the stakepool operator to receive Ada from Ada holders and safeguard these for them. The blockchain then rewards the stakepool operators for providing this service and the Ada holders receive interest on their Ada.