Résumé
Proof of Stake is a popular consensus mechanism and an alternative to Proof of Work. Instead of using computing power to validate transactions, validators must stake funds. This significantly reduces the energy consumption required. Proof of Stake also improves decentralization, security and scalability.
However, Proof of Stake may be less accessible for new users without access to cryptocurrencies. A 51% attack can also be easy to achieve with low-cap blockchains. Since Proof of Stake is very versatile, it has a wide range of variations for different blockchains and use cases.
Introduction
Proof of Stake is by far the most popular choice for blockchain networks today. However, with so many variations, it can be difficult to understand its basic concepts. Nowadays, you are unlikely to encounter it in its original form. However, all kinds of Proofs of Stake share the same fundamental concepts. Understanding these similarities will help you make better choices about the blockchains you use and how they work.
What does Proof of Stake mean?
The Proof of Stake consensus algorithm was introduced in 2011 on the Bitcointalk forum. It was proposed as a solution to Proof of Work problems. Although they both share the same goal of achieving blockchain consensus, the process is quite different. Rather than needing to provide computationally intensive Proof, participants only prove that they have staked funds.
How does Proof of Stake work?
The Proof of Stake algorithm uses a pseudo-random election process to select validators from a group of nodes. The system uses a combination of factors including staking duration, a randomization element and node wealth.
In Proof of Stake systems, blocks are âforgedâ rather than mined. However, you may still hear the term "mined", which is still used. Most Proof of Stake cryptocurrencies launch with a supply of âpre-forgedâ coins to allow nodes to validate transactions immediately.
Users wishing to forge blocks must lock a certain amount of coins in the network, this is called staking. The size of the stake determines the chances that a node has of being selected as a validator to forge the next block: the larger the stake, the greater the chances. Unique methods are added to the selection process to avoid overly favoring the richest nodes in the network. The two most commonly used methods are Random Block Selection and Staking Age.
Random selection of blocks
In the Random Block Selection method, validators are selected by looking for the nodes with the lowest hash value and the largest stake. Since stake sizes are public, other nodes can usually predict the next validator.
Age of funds
The funds age method involves choosing nodes based on how long their coins have been staked. The age of the funds is calculated by multiplying the number of days of staking of the funds by the quantity staked.
Once a node has forged a block, the age of its funds is reset to zero and it will have to wait a certain time before being able to forge another block: this measure prevents the largest nodes from controlling the blockchain.
Validation of transactions
Each cryptocurrency using Proof of Stake has its own set of rules of what it thinks is ideal for the network and its users.
When a node is chosen to forge the next block, it checks whether the transactions in the block are valid. He then signs the block and adds it to the blockchain. The node receives the block's transaction fees and, on some blockchains, a reward of new coins as reward.
If a node no longer wants to forge blocks, its stake and its rewards will only be unlocked after a certain period. This measure gives the network time to verify that the node has not added fraudulent blocks.
Which blockchains use Proof of Stake?
Most post-Ethereum blockchains use Proof of Stake consensus mechanisms. Typically, the mechanism is tailored to meet the needs of the network. We will cover these variations later in the article. Ethereum itself is currently transitioning to Proof of Stake with Ethereum 2.0.
Blockchain networks that use Proof of Stake or some form of it include the following:
1. BNB Chain
2. BNB Smart Chain
3. Solana
4. Avalanche
5. Polka dots
Benefits of Proof of Stake
Proof of Stake has many obvious advantages over Proof of Work. For this reason, new blockchains almost always use Proof of Stake. Its advantages include:
Adaptability
As user needs and blockchains change, Proof of Stake may also change. The large number of adaptations available confirms this. The mechanism is versatile and can easily adapt to most blockchain use cases.
Decentralization
More users are encouraged to run nodes because it is more affordable. This incentive and the randomization process also make the network more decentralized. Although there are staking pools, there is a much higher chance for an individual to successfully forge a block under Proof of Stake. Overall, this reduces the need for staking pools.
Energy efficiency
Proof of Stake is incredibly energy efficient compared to Proof of Work. The cost of participation depends on the economic cost of staking coins rather than the computational cost of solving computational problems. This mechanism results in a significant reduction in the energy required to run the consensus mechanism.
Scalability
Since Proof of Stake does not rely on physical machines to generate consensus, it is more scalable. There is no need to have huge mining farms or consume large amounts of energy. Adding more validators to the network is cheaper, simpler and more accessible.
Security
Staking serves as a financial incentive for the validator to not process fraudulent transactions. If the network detects a fraudulent transaction, the node will lose its entire stake, as well as the ability to participate in consensus in the future. As long as the stake remains higher than the reward, the fraudulent validator will have more to lose than to gain.
To be able to take control of the network and thus approve fraudulent transactions, a node must have a majority stake in the network, this is called a 51% attack. Depending on the value of the cryptocurrency, this can be very expensive, as you would need to control 51% of the cryptocurrency supply to take control of the network.
However, this can also be a disadvantage which we will explain below.
Disadvantages of Proof of Stake
Although Proof of Stake has many advantages over Proof of Work, it still has some disadvantages:
Forks
With a classic Proof of Stake mechanism, there is no disincentive for mining on both sides of a fork. With Proof of Work, mining on both sides will waste energy. With Proof of Stake, the cost is much lower, meaning people can âbetâ for both versions resulting from a fork.
Accessibility
To start staking, you will need coins of the blockchain's native currency. To do this, you must purchase the token through an exchange or another method. Depending on the amount required, you may need a significant investment to start staking.
With Proof of Work, you can buy cheap mining equipment or even rent it. With this, you can join a pool and start validating and generating revenue quickly.
Attack of the 51%
Although Proof of Work is also prone to 51% attacks, they can be much easier to implement with Proof of Stake. If the price of a token collapses or the blockchain has low capitalization, it can be theoretically cheap to buy more than 50% of the tokens and control the network.
Comparison of Proof of Work and Proof of Stake
When we compare the two consensus mechanisms, there are some fundamental differences.
However, there is a wide variety of Proof of Stake mechanisms on blockchains. Many differences will depend on the exact mechanism used.
Other consensus mechanisms that rely on Proof of Stake
Proof of Stake is highly adaptable. Developers can modify the mechanism according to the specific use cases of a blockchain. Here are some of the most commonly encountered.
What is Delegated Proof of Stake (DPoS)?
Delegated Proof of Stake allows users to stake coins without becoming a validator. In this case, they put them under the responsibility of a validator to share block rewards. The more funds staked behind a validator, the greater its chances of selection. Validators can generally change the amount shared with delegatees as an incentive. The reputation of a validator is also an important factor for delegates.
Designated Proof of Stake (NPoS)
Designated Proof of Stake is a consensus model developed by Polkadot. It has many similarities to Delegated Proof of Stake, with one key difference. If a delegator stakes behind a malicious validator, they may also lose their stake.
Delegators can choose up to 16 validators to stake behind. The network will then also distribute their participation behind the chosen validators. Polkadot also uses several approaches from game theory and electoral theory to determine who will forge a new bloc.
Proof of Authority and Stake (PoSA)
BNB Smart Chain uses Proof of Authority and Stake to generate network consensus. This consensus mechanism combines Proof of Authority and Proof of Stake, allowing validators to take turns forging blocks. A group of 21 active validators are eligible to participate, selected based on the amount of BNB they stakent or who is delegated behind them. This set is determined daily and the BNB Chain records this selection.
Conclusion
The way we add transaction blocks to a network has changed significantly since Bitcoin. We no longer need to rely on computing power to generate crypto consensus. The Proof of Stake system has many advantages, and experience has shown that it works. As time passes, it seems that Bitcoin will soon be just one of a few Proof of Work networks. For now, it looks like Proof of Stake is here to stay.
