Proof of Stake (POS) is widely used to secure blockchain networks and has become the most popular option in recent years. Despite its immense popularity, much confusion remains around its fundamental operation, as it has taken many forms over the years. However, all types of PoS have some common components that define their basic operation.
Understanding these essential principles will help users to properly evaluate the block chains they encounter and make informed decisions about their operation. By knowing the basics of PoS, people will be better equipped to confidently interact with the blockchains that work with it.
What is proof of stake
Proof of Stake is one of the two major consensus protocols used in blockchain technology. It was created to replace the traditional Proof of Work protocol and its main objective is to provide greater security and scalability to the networks that use it. Unlike its PoW counterpart, it allows users who own a large number of coins to have greater influence in the decision-making process.
This incentivizes token holders to keep up with the network, allowing the consensus process to occur more securely and faster than before. In this new algorithm, reaching an agreement between all parties is paramount, which makes Proof of Stake an attractive option for many networks.
Advantages of Proof of Stake
Proof of Stake has many advantages and it is for this reason that the new networks blockchain most frequently use PoS, here are some of its advantages:
Environmentally friendly
Cryptocurrency mining has a critical impact on the environment due to its high energy consumption, but this is not the case with proof-of-stake technologies, they do not require any type of mining for transactions to take place, thus minimizing energy costs and making them more respectful with the environment than other traditional methods. In addition, by not requiring large machines, the efficiency in the use of energy is higher, which reduces the need for additional sources of energy if mining is successful. In this way, proof-of-stake technology makes an already efficient coin even better
Alignment of Objectives and Incentives
The Proof of Stake protocol is an innovative method of allowing all participants in a Proof of Stake network to blockchain have the same incentives and objectives. Rather than individual members competing to increase their own profits, this protocol encourages all members of the network to work together toward a common goal: the long-term maintenance and operation of the network.
By ensuring that each party is in the game and will benefit from the successful performance of its responsibilities, Proof of Stake ensures that all participants are working together to achieve the same ends. These kinds of incentives help make networks more efficient and there are fewer conflicts of interest, important considerations when it comes to getting a great system running smoothly.
Fair Conditions
Proof of Stake is a great way to improve decentralization and democratize network access. This is because everyone can participate, regardless of their financial capacity or technical knowledge. It eliminates the need for mining and specialized equipment, allowing anyone with just a few coins to join the network and start validating transactions.
All participants are rewarded for their efforts, preventing certain players from gaining more influence than others due to costly platform deployments or hoarding of resources. Ultimately, PoS networks create a level playing field for all participants who must work to achieve consensus on shared resources or values.
Random selection system
The proof-of-stake consensus mechanism rewards node operators more proportionally as they are randomly selected by the network based on their coin holdings. This system caters to larger participants, who are more likely to be selected to verify transactions or create new blocks on the blockchain, which translates into higher profits. Although this has its drawbacks, as smaller investors have fewer opportunities, this model also provides a softer incentive system and helps promote decentralization within the network.
Security
Proof of Stake is a concept within blockchain technology and one of its most attractive features is its security, as it provides better protection against malicious activity in the form of 51% attacks. By making it too costly for an attacker to acquire more than 50% of the total amount of coins or tokens, proof-of-stake deters attempts to take over the network and allows nodes to maintain their autonomy without fear. Consequently, the security of a network based on proof of stake is definitely higher thanks to these preventive measures.
Scalability
Proof of stake (PoS) is famous for its scalability and speed, PoS is especially suitable for blockchain applications that require high performance and numerous transactions per second to be signed and confirmed. This makes the technology ideal for implementing blockchain in large-scale retail payment systems.
How PoS works
The Proof of Stake algorithm is the basis of some of the networks blockchain safest and most reliable in use today. It uses a pseudo-random election process to choose a validator node from a larger set in order to produce new blocks. As part of this process, factors such as the age of the stake and the richness and randomness of the selected node are taken into account. Block generation in these systems is called “forging”, but is often still colloquially referred to as “mining” due to its similar functionality and processes.
In addition, most Proof of Stake networks start with a large number of pre-generated coins, allowing nodes to go live almost immediately after launch. The forging process required in many blockchain networks can be daunting for many users. . These users must lock in a certain number of coins to participate as a validator on the network, and the size of their bet dictates their probability of being chosen as a validator.
It should be noted that there are methods to avoid exclusive concentration on the nodes with the largest amounts of coins, guaranteeing equal opportunities throughout the network. As each method is unique, it allows users from different backgrounds to feel secure and confident that their efforts are being sufficiently rewarded. The two most commonly used methods are Randomized Block Selection (random selection of blocks) and Coin Age Selection (selection of coins by age), we explain them in more detail:
Randomized Block Selection
The random block selection method is a very secure way of choosing the next validator to create a new block on the blockchain. This mechanism uses two factors to select the nodes: the lowest hash value and the highest stake. Since participants make public the amount of each bet, the other nodes in the network can predict with relative accuracy who will be next chosen to produce a block in the chain.
Given its reliability and security, it is not surprising that this is still one of the most used methods today when it comes to choosing the perfect validator for any task on the blockchain.
Coin Age Selection
The age-based coin selection method is an effective way to promote decentralization in a network blockchain. By multiplying the number of days a node has kept its tokens in play by the number of coins in play, it ensures that high-stakes nodes do not dominate the system. When a node has forged a block, its coin age is reset to zero and it must wait a certain amount of time before being able to forge again.
This prevents one node or set of nodes from having too much power over the blockchain. It is an elegant solution that favors decentralization between all types of nodes in the network, regardless of their size.
Proof of Work vs. proof of stake
If we compare the two consensus mechanisms, we can find some marked differences between the two:
| Proof of Work (PoW) | Proof of Stake (PoS) | |
| Equipment needed | mining equipment | Minimal amount or none |
| Energy consumption | High | Bass |
| trend towards | Centralization | Decentralization |
| validation method | computer test | coin staking |
Other consensus mechanisms based on Proof of Stake
Proof of Stake (PoS) stands out for its ability to be highly customizable by developers. The underlying mechanism of PoS can be modified to suit the unique use cases of a blockchain, which makes it an ideal consensus algorithm for various contexts.
This flexibility allows code to quickly add new functionality or adjust existing aspects of the network, allowing for greater customization and scalability. Additionally, this capability is coupled with strong security features that can bolster a blockchain's defenses and survive any potential attack without destabilizing its infrastructure. Here are some of the most common consent mechanisms:
Delegated Proof of Stake (DPoS)
DPoS is a system that allows users to stake their coins without becoming a validator themselves. Instead, they bet on a validator and get to share in the rewards of block creation. The more validators who endorse a potential validator, the better chance they have of being selected for the next round. As an incentive, many validators occasionally change the amount shared with their delegates. Validators will also have better luck if they have built a good reputation for reliability and efficiency.
Nominated Proof of Stake (NPoS)
The Nominated Proof of Stake is a consensus model developed by Polkadot which shares many similarities with Delegated Proof of Stake, but with one key difference. The nominators have to be especially aware when betting; if they bet in favor of a malicious validator, they may also lose their bet. For this reason, the network limits nomination to 16 validators per nominator and uses various game theory and choice theory approaches to identify who will fake a new block.
Ultimately, Polkadot helps ensure that stakers can trust the validators their chosen validator invests in and helps distribute their stake fairly to protect all participating members.
Proof of Staked Authority (PoSA)
The Proof of Staked Authority consensus mechanism of BNB Smart Chain is an innovative amalgamation of two popular consensus building methods: Proof of Authority and Proof of Stake. This combination allows validators to take turns creating blocks on-chain and performs a daily selection process in which 21 active participants are selected based on the amount of BNB they own or have been delegated to them. The selection data is securely stored in the BNB chain's memory, allowing for near-instantaneous completion time and high rewards for those selected as validators.
Popular networks using PoS
In the blockchain world, Proof of Stake consensus mechanisms are becoming more and more popular after Ethereum. They have seen a marked improvement in their consensus mechanisms since the pioneering days of Bitcoin. While Ethereum still primarily uses Proof of Work, the vast majority of post-Ethereum blockchains now use Proof of Stake. Thus, each network can customize their version of Proof of Stake to best meet their goals and objectives.
Even Ethereum, which has been successfully using its own variation of PoW for over half a decade, is currently transitioning with Ethereum 2.0 to its own iteration of PoS. With this new system, users can stake their Ether to become validators and secure the network according to new processes and standards. Here are some blockchain networks that use Proof of Stake or a variation of it:
2. Solana
3. Avalanche
4. Polkadot
Conclusion
In conclusion, with its many advantages over Proof of Work consensus mechanisms, such as lower power consumption and higher security and scalability, it is no wonder why Proof of Stake is becoming the preferred choice for blockchain networks. With so many variants available, you can choose the one that best suits your network needs. Even Ethereum itself has recently switched to a PoS system to offer users more reliable services. So if you want to stay ahead of the curve when it comes to consensus models, now may be the time to consider using PoS on your own network! contact us!
