Summary

Proof-of-Stake is a popular alternative to Proof-of-Work. Validators do not need computing power to verify transactions but must stake tokens, which greatly reduces the energy consumption required. Proof of Stake also increases decentralization, security, and scalability.

However, without access to cryptocurrencies, it is difficult to gain access to proof of stake. If you choose a blockchain with a lower market capitalization, a 51% attack is also prone to occur. Because Proof of Stake is highly versatile, it also has multiple variations that are suitable for different blockchains and use cases.

Introduction

Proof of stake is currently the most popular choice for blockchain networks. But because there are so many variations, understanding the core concepts can be difficult. You're unlikely to see it in its original form today. However, all types of proof of stake share the same core concept. Understanding these similarities will help you make better choices about which blockchain to use and how they operate.

What is proof of stake?

The proof-of-stake consensus algorithm was launched through the Bitcointalk forum in 2011 to solve the problems of proof-of-work. Although both algorithms have the same goal of reaching blockchain consensus, the processes to achieve their goals are quite different. Participants do not need to provide computationally intensive proofs, but only need to prove that they have staked their tokens.

How does proof of stake work?

The proof-of-stake algorithm uses pseudo-random election to select validators from a group of nodes. This system takes into account a variety of factors, including staking age (a randomizing element) and node wealth.

In the proof-of-stake system, blocks are "forged" rather than mined. However, you may still hear the word "mining" occasionally. Most proof-of-stake cryptocurrencies offer "pre-forged" tokens at launch so that nodes can be launched immediately.

Users participating in the forging process must lock a certain number of tokens into the network as their equity. The size of the equity determines the chance of selecting a node as the next validator. The greater the equity, the greater the opportunity. To ensure that the process doesn't just favor the richest nodes in the network, a number of special touches are added to the selection process. The two most commonly used methods are "Randomized Block Selection" and "Coin Age Selection".

Random block selection

In the random block selection method, the selection of validators is determined by looking for the node with the lowest hash value and the highest stake combination. Since the size of the stake is public, other nodes can often predict who will be the next forger.

Coin Age Selection

The currency age selection method selects nodes based on the staking period of the token. Coin age is calculated by multiplying the number of days a token has been held as equity by the number of staked tokens.

When a node forges a block, its currency age is reset to zero and it must wait for a period of time before it can forge another block. This helps prevent nodes with large stakes from dominating the area. Blockchain.

Verifying Transactions

Each cryptocurrency that uses a proof-of-stake algorithm provides the network and users with what it considers to be the best combination of rules and methods.

If a node is selected to forge the next block, it will check whether the transactions in this block are valid. It then signs the block and adds it to the blockchain. This node is rewarded with transaction fees from the block and, in some blockchains, tokens.

If a node no longer wants to be a forger, the network will verify whether the node has added false blocks to the blockchain. If the verification is correct, the node’s rights and interests will be released after a period of time. Rewards earned.

Which blockchains use proof of stake?

Most blockchains after Ethereum do Proof of Stake consensus mechanism. Usually, these mechanisms are modified to adapt to the needs of the network. We'll cover these changes later in this article. Ethereum itself is currently moving to proof-of-stake with Ethereum 2.0.

Blockchain networks that use proof of stake or related types include:

1. Binance Coin (BNB) chain

2. Coin Ancoin (BNB) Smart Chain

3. Solana

4. Avalanche

6. Polkadot

Advantages of Proof of Stake

Compared with Proof of Work, Proof of Stake has obvious advantages. Because of this, new blockchains almost always use proof-of-stake. Its advantages include:

Adaptability

As user needs and the blockchain change, so will the proof of stake. We can clearly see this from a large number of debugging applications. This mechanism is versatile and can be easily adapted to most blockchain use cases.

Decentralization

A large number of users are encouraged to run nodes because this method is more cost-effective. This incentive and randomization process increases the level of decentralization of the network. Although there is a staking pool, the chance of an individual successfully forging a block based on the proof-of-stake mechanism is much higher. Overall, this reduces the need for staking pools.

Energy efficiency

Compared with proof of work, proof of stake is very energy efficient. The cost of participation is determined by the economic cost of staking tokens, not the computational cost of solving the puzzle. This mechanism results in a significant reduction in the energy required to run the consensus mechanism.

Scalability

Because Proof of Stake does not rely on physical machines to generate consensus, it is more scalable. It does not require huge mines or large quantities of energy purchased. Adding more validators to the network is cheaper, simpler, and easier to implement.

Security

Stake acts as an economic incentive for validators so that they will not process false transactions. If the network detects false transactions, the validator will lose some of its rights and interests and the right to participate in future activities. Therefore, as long as the equity is higher than the reward, if the verifier attempts to cheat, he will lose more tokens than the reward he received.

To effectively control the network and approve false transactions, nodes must own a majority stake in the network, which is also known as a 51% attack. Based on the value of the cryptocurrency, gaining control of the network would require acquiring 51% of the circulating supply, which is nearly impossible to achieve.

However, this can also be a disadvantage, as we will explain below.

Disadvantages of Proof of Stake

Although Proof of Stake has many advantages compared to Proof of Work, It still has some drawbacks:

Forks

Using standard proof-of-stake mechanisms does not curb mining both sides of the fork. When using proof-of-work, mining both sides results in a waste of energy. With proof-of-stake, costs are significantly reduced, meaning people can "bet" on both sides of the fork.

Accessibility

To start staking, you need a blockchain’s native token supply. This requires you to purchase the token through an exchange or other means. Depending on the amount required, you may need a significant investment to effectively start staking.

With proof-of-work, you can buy cheap mining equipment or even rent it. This way, you can join a mining pool and quickly start validating and earning money.

51% attack

Although proof of work is also susceptible to 51% attack, it is obviously easier to use proof of stake. If the token's price collapses or the blockchain's market cap is low, it could theoretically be cheaper to purchase more than 50% of the tokens and control the network.

Proof of Work vs. Proof of Stake

If we compare these two consensus mechanisms, we will find that Some key differences.

However, different blockchains have various proof-of-stake mechanisms. A lot of the differences depend on the exact mechanism used.

Other consensus mechanisms based on proof of stake

Proof of stake is highly adaptable. Developers can tweak the exact mechanisms to suit the blockchain's specific use cases. Here are a few of the most common mechanisms

Delegated Proof of Stake (DPoS)

Delegated Proof of Stake allows users to stake tokens without becoming a validator. In this case, they can stake with the validator to share the block reward. The more delegators there are behind a possible validator, the greater the chance of selection. Validators can typically change the amount shared with delegators as a reward. The reputation of the validator is also an important factor in the choice made by the delegator.

Nominated Proof of Stake (NPoS)

Nominated Proof of Stake is a consensus model developed by Polkadot. It shares many similarities with Delegated Proof of Stake, but there is one key difference. Nominators (delegators) may also lose their stake if they follow a malicious validator in staking.

Nominators can select up to 16 validators and follow them to pledge their interests. The network will then distribute their stake equally among the selected validators. Polkadot also uses several methods from game theory and election theory to decide who will forge new blocks.

Authoritative Proof of Stake (PoSA)

The Binance Coin (BNB) Smart Chain uses authoritative Proof of Stake to generate network consensus. This consensus mechanism combines Proof of Authority and Proof of Stake into one, allowing validators to take turns forging blocks. A group of 21 active validators who are eligible to participate are selected based on the amount of Binance Coin (BNB) staked by the validators or delegated behind them. This collection can be determined on a daily basis and the selection will be stored on the Binance Coin (BNB) chain.

Conclusion

The way we have added transaction blocks to the network since Bitcoin Significant changes have occurred. We now no longer need to rely on computing power to generate cryptocurrency consensus. The proof-of-stake system has many advantages, and history has proven that proof-of-stake is effective. Over time, Bitcoin appears to be one of the few remaining proof-of-work networks. For now, it looks like Proof of Stake is here to stay.