Proof of stake
Proof of stake is a method of achieving distributed consensus through the selection of a validator set. It is used by blockchains to reach consensus on transactions in the network. Proof of Stake (PoS) is an alternative to the energy-intensive process of mining in proof-of-work (PoW).
Proof of work requires that a node spends significant computational power to solve complex mathematical problems. The result is that only a limited number of nodes can mine for new blocks, which makes mining unprofitable for most people and organizations.
Proof-of-Stake works by having all the validators or nodes in a blockchain put up a stake (deposit) from their cryptocurrency holdings, which will be lost if they act fraudulently or maliciously within the system. This ensures that no one can sign multiple blocks at once and it also gives them an incentive to stay honest as they will have their coins locked up for some time if they are caught cheating.
More about POS
A cryptocurrency blockchain network that uses Proof of Stake (PoS) seeks to achieve distributed consensus. In PoS-based cryptocurrencies, the next block's creator is chosen using a variety of arrangements of chance, wealth, or age (i.e., the stake). In contrast, the algorithm of proof-of-work-based systems chooses the creator of the next block based on computing power, i.e., processing speed.
In proof of work systems, miners compete with each other to solve complex mathematical problems in order to create new blocks and add them to the blockchain. The process requires substantial hardware and energy consumption and it is impossible to predict when a miner will find the solution and add a block to the blockchain.
In proof of stake systems, there are no miners which mean that there are no blocks. Instead, all users who hold some amount of tokens can take part in consensus formation by signing transactions on Ethereum’s blockchain network or creating new blocks on Cardano’s Ouroboros protocol.
Proof of stake was first introduced by Peercoin back in 2012 but at that time it was not adopted by other cryptocurrencies due to its low transaction speed and high transaction costs.
The networks that use Proof of Stake or a form of it include:
- BNB Chain
- BNB Smart Chain
There are several advantages to proof of stake:
- It’s more efficient because it doesn’t require as much electricity as proof of work. This makes it more environmentally friendly.
- It’s more secure because there are fewer people who need to be paid off for selfish mining attacks to succeed.
- It provides an incentive for users to hold coins rather than sell them immediately after receiving them from airdrops or other distributions.
- No need for specialized hardware
- Transactions are faster than PoW cryptocurrencies
There are many advantages to Proof of Stake, but there are also some disadvantages that should be considered before implementing it.
The following is a list of some of the disadvantages of Proof of Stake:
It is less secure than Proof-of-Work: A 51% attack is still possible if one group of stakeholders owns more than half of all coins, regardless of how they were obtained.
It is easier to launch an attack on a network running on Proof-of-Stake: If you own more than half of all coins in circulation then you can simply double-spend your own coins by spending them again on another address. In order to do this with a PoW system, you have to invest computing power into generating new blocks which require significant resources and money. This means that it's unlikely for an attacker to have enough computing power to launch such an attack unless they control a large portion of the network hash rate already.
It's easy for stakeholders with larger stakes to manipulate the price: Large stakeholders can manipulate prices by buying up coins at below market value and selling them off when they want higher prices in order to make profits as well as manipulate trading activity in general by buying or selling large amounts of coins on exchanges at once.
Proof of Staked Authority (PoSA) is a new consensus mechanism that uses staking, a blockchain-based form of governance, to achieve decentralization. This article explains the PoSA system in detail and how it differs from PoS.
Staking is a blockchain-based form of governance that allows users to vote on whether or not certain transactions are valid. It’s not uncommon for blockchains to use staking as part of their consensus algorithm; some examples include EOS, Cardano, NEO, Tezos, and Lisk.
In PoSA, nodes stake their coins in order to participate in voting on whether or not certain transactions are valid. If they decide that they don’t think the transaction is valid, then they can punish the node who made the transaction by taking away some of their stakes. If they decide that they do think it’s valid, then they reward that node with more coins (for example).