Bitcoin can be viewed as a spreadsheet that keeps track of who owns what. It is decentralized with no single point of failure because the history of transactions is updated each ten minutes by participants in the network from all over the world. This makes bitcoin a technology that is both open and secure at the same time.
As it turns out the bitcoin technology can be used for a lot of other things in addition to currency. A few of the usecases are voting, asset exchange, confirmation of identity, storage of information, gambling, prediction markets, DNS registration, and many other things. All of these usecases inherit the same advantages as we see with bitcoin; global, transparent, and extremely secure with no single point of failure.
In light of these other usecases it can be useful to understand bitcoin and related systems not as a currency but rather as stocks. For instance, bitcoin is both the name of the underlying bitcoin system, and the name of the currency that exists in that system. Instead, we can view the currency as a stock, and the bitcoin system as a company. With this metaphor in hand we can now understand that bitcoin technology in fact makes,
Decentralized Autonomous Companies (DACs) possible. DACs are autonomous bitcoin-like systems that exist entirely in code. Like bitcoin they are global, transparent and secure with no single point of failure. Like companies they can take profits, from transaction fees, and they have expenses, like securing the network.
With this change of metaphor is is natural to ask, how does Bitcoin pay for the decentralized group of people who update the "spreadsheet" in a secure and transparent manner? Answer: The bitcoin system is actually inflationary, and it uses this to pay those who update and secure the network.
In fact, as of 2014, the bitcoin system imposes a 10% inflation rate per year, and all the newly created bitcoins and as well as all the transaction fees, go to the so-called "miners" who update and secure the network, which brings the costs to about 500 million per year for the bitcoin system viewed as a company.
Of course, this hidden cost of having to pay 1 out of every 10 bitcoins we own to the people who secure the network is currently being obscured by the fact that bitcoin has been rising at an alarming rate.
If there was no alternative, we might settle for this. The bitcoin system would still be cheaper and more environmentally friendly than the mesh of people and brick and mortar buildings that normal businesses employ to get their work done. However, there is an alternative. It is called Proof of Stake (PoS).
To understand why PoS makes a difference we first must understand bitcoins Proof of Work.
In essence, Proof of Work is the method bitcoin uses to update and secure the network, and it relies or heavy duty work from computers that need to "mine" for difficult to compute mathematical numbers. This is why bitcoin needs to spend their 500 million dollars a year to pay the miners. The computational work costs a lot both in terms of electricity and hardware.
In contrast, Proof of Stake is the new method that many alternative cryptocoins have been using to update and secure their network. Instead of relying on heavy duty work from computers to do work, it relies on giving people with stocks in the company a means to "vote" for the people who secure and update the network.
In this way it gives power to the people who have a stake in the system and who want the system to keep operating without failure. The "miners" in bitcoin by contrast need have no stake in the system, and can sell the bitcoins they earn as soon as they computers have done the requisite computational work.
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