Proof-of-stake (PoS) is the second consensus mechanism after proof-of-work (PoW) adopted by cryptocurrencies like Ethereum 2.0. Under the PoS consensus protocol, the validators are chosen based on the number of coins they have staked to process a transaction and add a new block to the blockchain.
This cryptocurrency consensus mechanism came after Ethereum 1.0 working under the proof-of-work protocol encountered a 51% attack. A 51% attack is said to have occurred when a group of miners controls 50% or more of the network’s mining hash power. They get vested with the power to prevent a new transaction from gaining validation and also halt and/ or reverse the payments between some or all the users. The attack also gives rise to the problem of double-spending. This was designed to address the shortcomings of the PoW consensus mechanism.
Working on the PoS
Proof-of-stake consensus mechanism requires the validators to stake some of their coins as collateral before they are chosen to validate a transaction. In the case of Ethereum, the validators must stake 32 ETH in a smart contract on Ethereum. By Staking their ETH, the users become a part of the activation queue which limits the new validators joining the network. The validators are chosen based on a few parameters:
- Number of tokens staked: Higher the number of cryptocurrencies staked, the chances of being a validator increases
- Staking period: Longer the term of staking also increases the probability of becoming a validator.
- Random selection: Though the PoS validators are chosen based on the number of tokens they have a stake in, a certain degree of randomness is involved to avoid centralization.
Once a validator is picked to verify a transaction they receive new blocks from the peer on the Ethereum network. PoS eradicates the need for computational work usually carried out by miners operating on the PoW network. The transactions are verified in a simple manner, running three separate software:
- An execution client
- A consensus client, and
- A Validator
The validator is then responsible for validating the transaction and sometimes, creating and propagating new blocks. The distinctive feature of PoS is that if the validators are found engaging in dishonesty or fraud, some or all of their staked ETH will be destroyed.
The timing of the block is divided into slots (12 seconds) and epochs ( 32 slots) in PoS, Unlike PoW where it depends directly on the complexity of mining. Once a validator is chosen to be a block proposer in every slot, they are responsible for verifying the transaction and sending it to other nodes in the network. Every slot also comprises a committee of validators to vote on the validity of the block being processed.
Types of PoS Consensus Mechanism
The PoS consensus mechanism is of many types with a slight variation on the original protocol.
- Delegated Proof-of-Stake: DPoS mechanism facilitates the users of the network vote and elect delegates who can validate the blocks. These delegated validators are called witnesses or block producers. Under DPoS, the network users stake their tokens in a staking pool and vote for the delegate they desire. Once the delegate verifies the transaction accurately, they are rewarded with the transaction fees which also get distributed among the individuals who voted for them based on the proportion of tokens staked.
- Leased Proof-of-Stake: Under the LPoS consensus protocol, the users lease their cryptocurrencies to the node that aims to act as a block producer. Once the transaction is verified, the users who have leased the tokens are entitled to receive their part of the transaction fees based on the number of token stakes. This allows the smaller token holders to be a part of the block creation process who wouldn’t otherwise have been eligible under the original PoS.
- Pure Proof of Stake: The PPoS mechanism offers a low staking requirement for participating in the process of securing the blockchain. There is no built-in mechanism for malicious activity or security faults like the duplicate block validation under this protocol. However, it opens the door to all the interested parties for being a part of the block creation with the lowered requisites on staking making it a highly democratized and accessible PoS mechanism.
- Proof of Importance: POI is an iteration of the traditional PoS mechanism with the idea to promote a more holistic approach that secures the blockchain. Unlike the traditional PoS where the governance capabilities of the node are directly proportional to the amount of capital vested by them, POI takes into consideration additional factors while deciding the on-chain influence. Though these factors keep varying, some would include the degree to which a node is interlinked and the number of transfers it has participated in over a certain period.
- Liquid Proof of Stake: Liquid PoS enables network users to loan their validation power to others without losing ownership of the tokens. While this consensus mechanism draws similarities to the delegated PoS, it vests the users with the right to make their own choice whether to delegate their validation rights or stake their own tokens. DPoS offers a fixed number of node validators contrary to LPoS where the number of validator nodes is dynamic.
- Proof of Validation: PoV operates through the validator nodes. Under this mechanism every node titans an entire copy of the sequence of transactions in blocks. The replica of all the user accounts can be identified with the user’s public key and from the token the node owns. The users have the opinion of staking the tokens within the validator nodes and the number of tokens staked determines their voting rights.
- Hybrid Proof of Stake: The hybrid proof of stake mechanism uses both the PoW and PoS consensus protocols to power the network. Mostly, under this hybrid mechanism, the miners from the PoW verify and validate the transaction on the network, which is then passed on to the PoS validators to vote on its accuracy and add them to the blockchain’s ledger.
Proof-of-Work Vs Proof-of-Stake
| Proof-of-Work (PoW) | Proof-of-Stake (PoS) | |
| Block Creation | Miners are involved in validating the transactions and adding a new block. | Validators are responsible for verifying the transactions and sometimes creating a new block. |
| Rewards | Miners receive block rewards and a certain percentage of transaction fees. | Validators receive the rewards in the form of transaction fees. |
| Requirements | Miners require heavy equipment and energy to be able to verify transactions. | Validators must stake a certain number of tokens as collateral for participating in the process of block creation. |
List of Top 10 Cryptocurrencies using the PoS Consensus Protocol
- Ethereum (ETH)
- Binance (BNB)
- Cardano (ADA)
- Polkadot (DOT)
- Toncoin (TON)
- Avalanche (AVX)
- Cosmos (ATOM)
- Aptos (APT)
- Near Protocol (NEAR)
- The Graph (GRT)
Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
