Proof of Stake Consensus Mechanism
For cryptocurrency exchanges to be conducted effectively, they must be affirmed by the blockchain. These assertions depend on what are called consensus mechanisms (PoS Consensus Mechanism). It allows the system to continue to function, even if some of its members are not up to par.
A blockchain’s distributed network consists of several thousand participants – some altruistic, others rational, and others malicious.
In this difficult environment, a crucial problem must be solved for making digital currency work: All nodes must agree on a single transaction history. Without a consensus on who owns what, the network would be worthless.
•The main advantage of Proof-of-Stake is that it avoids the phenomenal expenditure of energy of Proof-of-Work.
•In a PoS blockchain each validator node must be identifiable.
•Peercoin is using a hybrid PoW / PoS method in an attempt to take advantage of both systems and create a more robust consensus.
The consensus mechanism of a blockchain allows the network to agree on a single version of the story. History in the case of a cryptocurrency-type blockchain is the order in which transactions took place on the network.
When a network participant creates a transaction, it is then broadcast to the entire network. Each node records the transaction and adds it to its version of the ledger.
The different versions kept by the different nodes may look slightly different. If you are in the United States and send a transaction, the nodes closest to you will receive it sooner than a node based in Asia.
You get a set of slightly different versions of the same transaction history at the end of the day.
There are many approaches to achieving consensus in a distributed network, but the two most commonly used are proof of work and proof of stake algorithms. I like the generalization that Demiro Massessi made:
“The main difference between consensus mechanisms is the way in which they delegate and reward the verification of Transacciones. In one way or another, blockchain consensus algorithms boil down to some kind of vote where the number of votes that a user has is tied to the amount of a limited resource that is under the user’s control.”
Proof-of-stake is a method by which a blockchain of a cyber currency aims to achieve distributed consensus.
While Proof-of-Work (PoW) requires users to run hash algorithms multiple times adding a random alphanumeric string to the block data until the entire hash is Below a given threshold, Proof of Stake requires the user to prove possession of a certain amount of cryptocurrency (their “stake”) to claim to validate additional blocks in the blockchain and to receive the reward.
As of today, blockchains using Proof-of-Stake are young. The first implementation was NXT in 2013, but all of the protocols we are talking about here started to be developed from the year 2014 and came into operation between 2016 and 2018.
Peercoin was among the first cyber-currency to use Proof of Stake. Other implementations have been tried using different methods including BitShares, ShadowCash, Nxt, BlackCoin, NuShares / NuBits, and Qora.
Ethereum is planning to transition from Proof of Work (PoW) to Proof of Stake (PoS) during its final deployment. Peercoin is using a hybrid PoW / PoS method in an attempt to take advantage of both systems and create a more robust consensus.
The main advantage of Proof-of-Stake is that it avoids the phenomenal expenditure of energy of Proof-of-Work. On the other hand, many generally believe that the blockchain thus forged does not present the same robustness and the same level of immutability of Bitcoin’s Proof-of-Work. Some research efforts focus on a hybrid Proof-of-work / Proof-of-stake mechanism.
Most Proof of Stake issues and challenges are due to disconnecting from the real world, which is not a problem with Proof of Work which anchors the system in the real world with the infrastructure it requires and the energy expended.
Top Cryptocurrencies That Use The PoS Consensus Mechanism
•Ethereum (ETH) is in the process of switching to a PoS system.
PoW vs. PoS
Skeptics question the overall safety of the proof of stake-consensus model because there is no need to consume actual resources to be a validator. There is no cost associated with building a new block on both branches when there is a temporary fork. This is called the “Nothing at stake” attack.
In PoW, there is an actual cost (electricity) for each block that is mined. It remains to be seen whether PoS blockchains can provide the same guarantees of security over a long period of time that Bitcoin with its PoW blockchain has shown for over a decade now.
Another difference between the PoW and PoS is that in a PoS blockchain each validator node must be identifiable. The wagered coins must be held responsible for any malicious act.
In a PoW blockchain, it is not necessary to have miners or identifiable nodes. In fact, it is a characteristic, that if a node receives a block, there is no information included about who was the miner of the block.
It could be the node from which you just received the block or that it was relayed several times before reaching you. It does not and should not matter who the minor was. All that matters is that the puzzle is solved and all transactions in the block are valid.
Proof of stake supporters refer to the high cost of energy and the limited throughput of PoW blockchains and therefore consider the PoS consensus mechanism to be more sustainable.
At present, there is no PoS blockchain available that can support its security claims with a track record over a long period of time. Time will tell if PoS blockchains can deliver on their promise to also be secure while being more scalable than PoW blockchains.
Frequently Asked Questions (FAQS)
1. Will bitcoin be proof of stake in the future?
Bitcoin will not be proof of stake in the future. Proof of work is essential to Bitcoin’s core use case of being a store of wealth that can be moved safely and smoothly.
2. Is proof of stake more energy efficient?
Yes it is because the basis of proof of stake doesn’t require any extra energy to prove trustworthiness. Unlike in proof of work, where specialized computing equipment like high-end graphics cards are needed, the proof of stake protocol can be run off of a laptop.
Proof-of-Stake takes a more prominent place in the ecosystem every day and is an important topic at the moment, especially with Ethereum which wishes to migrate to this system. This validation method could offer an alternative to PoW in the future, but it will be several years before its robustness is recognized or other alternative models emerge, to which we will come back.
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