Previous article I had an article about What is proof of work (PoW)? Anyone who doesn't know can review it. Today I will introduce to you the consensus mechanism Proof of stake. The system still uses encryption algorithms. But the goal of the mechanism compared to PoW is different. It won't be long after that.
What is Proof of Stake?
Proof of Stake (PoS) is a consensus algorithm for the blockchain network. Decide who confirms the next block. Instead of decoding cryptographic problems use computational power to verify transactions.
Proof of stake (Proof of Stake) was introduced in 2011. Peercoin is the first cryptocurrency to implement a comprehensive PoS consensus model. Being able to expand more on PoW consensus in Bitcoin, requires significant energy expenditure.
Proof of Stake (POS) was created in place of Proof of Work (POW). Used to confirm transactions and add new blocks to the chain.
See more: What is blockchain?
How Proof of stake works
Proof-of-Stake reached consensus by asking users to contribute a portion of their tokens to have the opportunity to be selected to validate transaction blocks and rewarded for doing so.
In PoS, blocks are "forged" instead of being mined. The first factor to be considered in this selection process is the user's stake.
Every person who wants to participate in the process must own a stake in the network. Staking involves locking a certain amount of money into the network as their stake. Use it as collateral to prove the block.
The more users bet, the higher their chances of being selected. The number of stakes determines the chance that the node is chosen as the validator to forge the next block. The bigger the stakes, the greater the chance of staking compared to the one staking.
In PoS, incentivizing participation in authenticating reward blocks is a payment in the form of transaction fees. Contrary to the newly created currency in PoW systems.
To avoid thinking that this is an opportunity for the rich node in the network. More and more unique methods are added to the selection process. The key here is to include a level of opportunity for the selection process to avoid the case that the richest user is always chosen to validate transactions, always reap rewards and get richer.
The two most commonly used methods are Random block selection , and Choose age Coin:
- Random block selection The validator is selected by searching for nodes with the lowest hash value associated with the largest stake.
- Choose age Coin: Nodes are chosen based on the time their tokens have been held as shares. Coin age is calculated by multiplying the number of days the coins are held as shares by the number of coins.
Assess the pros and cons of PoS
PoS is one of the best options for the cryptocurrency consensus algorithm.
- Energy: PoS algorithm saves energy - especially when compared to PoW.
- Security: To control the network and approve fraudulent transactions. A node must own the majority of shares in the network, also known as a 51% attack. This would be impractical to gain control of the network. You need to own 51% of the money in circulation.
- Hierarchy: If users on a network based on PoS invest twice as much as other users. They will have double control. The same scenario on PoW will give users exponential control.
- PoS based on shares corresponding to holdings. This means that large token holders have better ROI and the rich become richer.
- Holders of large numbers of tokens threaten the decentralized authentication process of the network. Put more power in the hands of affluent validators.
Benefits for cryptocurrency owners
When you own cryptocurrency you are not interested in becoming a validator. There may also be rewards for participating in the network's ecosystem.
Various ways to generate revenue by stking are available today. The rules depend on the blockchain you are using. Be sure to learn more about each protocol before joining:
- Reward for holding: Users can earn rewards by only keeping their money in their wallets for a certain period of time. The act of receiving a reward can be automatically executed by the protocol. Or due to user action.
- Reward for participation-authorization: Users entrust part of their shares to validators. The reward will come from the validator sharing a portion of his revenue with those who entrust their shares to him.
Cryptocurrency uses PoS
Ethereum, a high-end smart contract platform. In the process of transitioning from PoW to PoS to supplement the performance needs of the network. Other networks, like Cosmos. An active blockchain network and one of the first comprehensive PoS implementations goes into operation.
Peercoin (PPC) uses a system that combines both methods. There are also Nxt (NXT), HyperStake, ...
The popularity of Proof of Stake
PoS has significantly increased the circulation rate over the past few years among public blockchains seeking to improve the underlying performance performance of Bitcoin. Such blockchains can support a variety of transactions and other applications that have appeared to meet specific network needs.
PoS also gives validators and node operators a greater opportunity to engage in consensus. Entry and exit requires holding a specific number of tokens. This is appealing to users who do not want to spend money on expensive hardware to mine Bitcoin.
Overall, PoS has gained significant momentum in the rapidly growing cryptocurrency space.
The popularity of Proof of stake Make it a new standard. Each algorithm will have its own advantages and disadvantages, but PoS currently dominates in confirming the new block. PoS has wide support among many industry experts so it is more sustainable. Everyone has their own evaluation of each mechanism.