Proof-of-stake is a consensus mechanism used to decide the next global change in the network. It uses a staking mechanism where participants lock up some of their coins to get selected.
Proof-of-stake in the blockchain is one of the controversial consensus protocols. After digging out all the negatives in the proof-of-work usage by Satoshi Nakamoto in Bitcoin, blockchain giants like Ethereum also decided to move on with proof-of-stake. In addition, much research is underway to implement the PoS consensus mechanism on the Ethereum blockchain.
PoS is another consensus mechanism like Proof-of-Work (PoW). A consensus mechanism is a way to keep a decentralized network synchronized. In simple terms, it’s a state where most network participants agree on the next alteration to the network. For instance, a bunch of friends decide to play football. Their state of deciding to play football together is the state of consensus.
One such protocol is Proof-of-Stake. Let’s dig in to understand it.
What is Proof-of-Stake (PoS) in blockchain?
Proof-of-stake overcomes the limitations of proof-of-work like excessive power and energy consumption. In the case of proof-of-work, all the miners have to do the heavy mathematical computation, and eventually, only one of them selects. Hence, this way results in massive wastage of computational and energy resources.
Therefore, unlike PoW, proof-of-stake (PoS) first stakes some coins. That means the participants (or validators) must give some of their coins as a stake. If the block they wish to forge in the network turns out to be fraudulent transactions, they’ll lose that stake. Else, they’ll get their staked coins.
Note: Proof-of-stake is a mechanism for the network participants who wish to add a new block of transactions. The purpose is to save the costs of mining a new block in the network from the beginning.
In addition, in proof-of-stake, we have validators. Validators are basically the network participants who want to add their block of transactions. They must stake some of their coins in the escrow account to ensure their selection.
Hence, there are several validators selected. Based on random selection, one of them gets the chance to add his block. First, other validators check whether the chosen validator’s block is valid by attesting. If marked as valid, he gets the reward. Else he loses his stake.
Let’s understand the working of Proof-of-stake and the validation process thoroughly.
How does the Proof-of-Stake Algorithm work?
Now we’ve understood the below points:
- Blocks in PoS, not mined but forged in PoS protocol.
- Here, the already added network participants who wish to forge or add a new block of transactions can participate. They are also called validators.
- Validators have to give or initially lock up a portion of their earned coins as a stake in the escrow account for a time frame.
- One of the validators’ blocks selected randomly based on their stakes.
- The selected block will be verified and attested by other validators.
- Suppose a block attested by all the validators as valid. The block adds to the blockchain network, and its validator earns rewards.
- Otherwise, if it’s fraudulent or creates any discrepancy, it will be marked as invalid, and the participant will lose his staked coins.
Let’s take an example of the above steps using a diagram.
However, the above process raises a few questions. Such as:
If validators’ blocks are not selected, why would they attest to someone else block?
Well, if any network participant signed up as a validator, they must participate in the validation process. Else, they will lose some of their staked coins as a punishment for being ignorant of the process as a validator. Moreover, this is called slashing the validator.
How does one of the validators gets selected?
Multiple ways exist to select among participating validators, such as the number of coins staked or how long they have been staking. These constraints show they are reliable and trustable. In addition, sometimes a random function uses to select a participant and gives everyone a fair chance.
Can the proof of stake be used as an initial consensus mechanism?
For now, it’s not. PoS come in handy after a substantial amount of participants are already added. Hence, it can’t be too early because it raises the risk of a 51% attack by dominant network participants. One can start with a consensus mechanism like Proof-of-work (PoW) afterward can move to PoS like Ethereum is doing.
This brings us to our next section: proof-of-work VS proof-of-stake.
Proof of Work VS Proof of Stake
|Proof of Work (PoW)
|Proof of Stake (PoS)
|The validity of a block is tested based on computational work done.
|The validity of a block is tested based on stakes by validators.
|Proof of Work utilizes the concept of Hashing.
|Proof of Stake utilizes the concept of Digital Signing.
|The first miner who solves the cryptographic problem gets the reward.
|Validators get network fees as rewards.
|There’s a competition among miners for who solves the puzzle first.
|The chosen validator gets to add its block. Hence, no competition.
|To attack the security system, hackers need 51% computation power of the whole network.
|To attack the security system, hackers need to own 51% cryptocurrency of the whole network.
|PoW systems consume a lot of energy and are expensive yet proven solutions.
|PoS is a cost and energy-efficient solution. Yet requires more research.
|Can achieve more scalability as all nodes in the network are involved.
|The complete network is not involved in the verification part.
|It requires high-tech computational hardware.
|It requires network reputation and staking coins.
Delegated Proof of Stake (DPoS)
The mention of proof of stake is incomplete without the new improvement, that is, the Delegated proof of stake (DPoS) system. In delegated PoS, validators’ selections are based on an election process. Here, other network participants can vote for the validators they want to choose. The number of tokens a network participant owns can give the same number of votes to nominate a validator. Further, validators can create and validate a new block that gets added to the network.
The above article goes through the gore details of the proof of stake (PoS) consensus mechanism. It thoroughly explains the working of PoS with an example and a few questions. It also covers a comparison table between proof-of-stake (PoS) and proof-of-work (PoW) consensus algorithms. At last, it highlights the concept of the Delegated proof-of-stake mechanism.
I hope you enjoyed reading the article. Please share your queries and feedback. And stay tuned for an upcoming blog on blockchain technology.
Which cryptocurrencies use PoS?
Solana, Cardano, Ethereum 2.0, Polkadot, Terra, and Tezos.u00a0
What is proof of work (PoW)?
Proof of Work (PoW) in the blockchain is a consensus mechanism that lets miners add a new block to the network based on the computation done to find the perfect hash.
What is proof of stake (PoS)?
Proof of stake is a consensus mechanism to decide the next global change in the network. Further, it uses a staking mechanism where participants lock up some of their coins to become a validator.
What are the other blockchain consensus?
Some alternative consensus protocols includeu00a0Proof of Work (PoW),u00a0Proof-of-Stake (PoS),u00a0Delegated Proof-of-Stake (DPoS), Proof-of-History (PoH),u00a0Proof-of-Burn (PoB),u00a0Proof-of-Importance (PoI),u00a0Proof-of-Elapsed-Time (PoET),u00a0Proof of Capacity (PoC)u00a0and many more.