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What is Proof of Stake? Everything you need to know about PoS

The Proof of Stake (PoS) algorithm is an emerging consensus algorithm. In the near future more blockchains are using this algorithm. They do this because Proof of Stake has several advantages over Proof of Stake. In this article we explain what Proof of Stake is, and what the advantages are compared to the disadvantages that Proof of Work has.

What is Proof of Stake?

Proof of Stake entitles nodes with a share of network tokens to receive rewards for validating blocks. This consensus is, in contrast to the Proof of Work algorithm used in Bitcoin , a lot more environmentally friendly. Proof of Work is all about who has the most computing power.

Someone can decide to participate in the Proof of Stake algorithm. For this he will first have to bet money. This is the stake. It is then determined what someone’s interest is within the network. When someone bets more than another, the chance of being allowed to validate blocks is a lot higher. Anyone can participate in this algorithm, although you must have enough money to start. It is not that you have lost the money, because it is a deposit that you can get back later.

The stake gives the right to validate blocks, but also ensures that nodes do their best to do a good job. If someone does not comply with the rules set by the network, it can be decided to take the bet and remove someone from the network. In this way, the network wants to ensure that they can trust whoever is validating blocks. The network will always find out when someone does something that is against the rules.

The moment someone decides to leave the network, they get their bet back. It is, after all, a kind of deposit. Although it is slightly different from a normal deposit, because you can earn money with this deposit. So you can see it as a kind of interest that you receive on the deposit you bet. Just like a savings account.

There are several cryptocurrencies that use the Proof of Stake protocol. These include BlackCoin, PivX , Reddcoin, and Stratis . The list of cryptocurrencies using PoS is growing every day due to its popularity.

The benefits of Proof of Stake

Compared to Proof of Work, Proof of Stake is therefore much more environmentally friendly. The computational effort required for Proof of Work and the associated power consumption do not occur with the Proof of Stake algorithm. With the PoW algorithm, many people are busy providing work, which will then not be used. Bitcoin is also the largest user of PoW. Many Bitcoin miners are located in China , where energy is mostly generated in coal-fired power stations. So not exactly good for the environment.

In Proof of Stake, a node only delivers work when it is chosen to validate. So no energy is wasted on work that will ultimately not be used for the blockchain . We can therefore say that Proof of Stake is a very green way of mining .

In addition, Proof of Stake is also a very safe algorithm. If someone wants to perform a 51% Attack, he will first need to have more than half of the total crypto coins in his possession. Is that impossible? Certainly not, but the chances of that happening are very small. So small, that you can assume that this will never happen.

How does Proof of Stake work?

With Proof of Stake, the transactions must be validated by the nodes participating in the network. However, you cannot just participate, and you must first wager an amount of money. So we call this the stake. Based on the number of crypto coins or crypto tokens that someone has deployed, it is determined whether he or she is allowed to validate transactions, and thus add blocks to the blockchain.

Miners may have wagered the same amount of money. In that case they are drawn, just like in a lottery. This happens completely randomly. So it’s not that you can have any more chance for some reason, besides the chance you get based on the amount of deposit you’ve wagered. In addition to many crypto coins, you also need luck.

The Proof of Stake algorithm is significantly easier and cheaper to use than Proof of Work. For this reason, this method is also the (currently) more promising variant, which is why the team behind the cryptocurrency Ethereum has decided, among other things, to switch to Proof of Stake. Also, many new cryptocurrencies prefer this protocol. Ethereum is being converted to a hybrid version of the two protocols: in the future, about one percent of blocks will be secured via Proof of Stake.

Disadvantages of Proof of Stake

However, Proof of Stake also has some shortcomings. And those shortcomings could keep the protocol from growing as big as we’d like. This algorithm mainly attracts people with a large wallet. People who have little money should not opt ​​for this algorithm. This gives you a greater chance of earning money if you already have a lot of money. The rich get richer while the poor stay poor.

There are many people who think that it is a very educational algorithm because of this. That is why a new kind of algorithm has arisen from Proof of Stake. This algorithm has Delegated Proof of Stake . Here you do not bet money, but your identity is used as a deposit. You can run for election as a miner by setting up an election manifesto. You can then be chosen as a Delegate through a voting system, which means that you are chosen to be allowed to mine. So this is the democratic variant of Proof of Stake.


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