PoS is considered a greener and cheaper alternative to proof of work (PoW).
Proof of Stake (PoS) is a method of validating transactions and generating new blocks on a Blockchain network.
Instead of requiring nodes (called “validators”) to solve complex calculations in order to create new blocks (as is the case in proof-of-work), validators in a PoS system are chosen based on the number of coins they have pledged (or “bet”). The more coins a validator puts into play, the more likely they are to be chosen to create a new block.
Peercoin was the first cryptocurrency to implement a large-scale PoS consensus model.
Validators
Validators, in point of sale Blockchain, are selected to produce the next block based on their participation. Although often designed with random features to avoid consensus execution, a larger amount staked by a validator gives them a higher chance of producing the next block.
The blocks offered by the validators are then propagated to the rest of the network, which verifies and adds the approved block to the Blockchain.
Benefits of the Network
PoS bypasses the PoW-like lottery process, eliminating energy expenditure to achieve consensus in the process. This has several important performance and security implications.
Performance-wise, PoS has a “fast final” consensus design in which block production can converge on consensus between validators and network nodes at a much faster rate than its PoW counterpart. As a result, PoS networks perform better in terms of on-chain transactions per second (TPS) and effective settlement of network transfers.
With respect to security, validators are encouraged to act honestly when producing blocks and approving transactions for two main reasons, explained below.
First of all, validators are likely to control significant parts of the coin, even those that are not locked on the network, giving them a financial incentive to secure the chain against a dilemma where security vulnerabilities negatively affect the coin price.
Second, the mechanism for blocking a stake that block-producing validators must adhere to is threatened with being “reduced” or removed from their control if they choose to act maliciously, produce fake blocks, or manipulate transactions.
Benefits for Cryptocurrency Holders
Cryptocurrency owners, who are not interested in becoming validators, can also receive rewards for participating in the network ecosystem.
Different ways of generating passive income are available today. The rules depend on the Blockchain being used.
Stop Reward – Users can earn rewards only by holding their crypto in their wallet for a specified period of time. No specific action is necessary to bet on these cryptocurrencies. The reward will depend on how many coins are saved in your wallet and (often) how many times they are saved.
Participation/delegation reward – Users delegate part of their participation to a validator who will be in charge of securing the network. The reward will come from the validator sharing part of their income with those who have delegated their participation.
By Audy Castaneda
