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Consensus Algorithm Proof of Stake

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  • Consensus Algorithm Proof of Stake

    PoS (Proof-of-Stake)

    If the system employs the Proof-of-Stake algorithm, it is more appropriate to speak of validators, i.e., network members, and not miners. In order to confirm a transaction and add it to the pool, validators lock part of the funds by converting them to a stake they put on the block that may be added to the network. This mandatory collateral is fixed with the aim of securing any possible improper behaviors of network member. Members thus compete for the entitlement to confirm and not create a block. In general, the more currency is held in the member’s account and the longer the holding period, the higher the chance this member has of signing the block and receiving commissions charged as transaction fees from the block. In order to remain fair and stable, the system requires the implementation of mechanisms that would allow even smaller currency holders to compete for the right to sign a block. Therefore, different modifications of this algorithm subject to additional terms are common in blockchain systems.

    Pros of PoS:

    ● Lower energy consumption as compared with PoW. The validation process is completely virtualized and requires no heavy computing.

    ● Protection from a 51% attack. The malicious user would hardly benefit from this kind of approach.

    ● Faster decision-making. Since major players are given extra votes, it takes less time to reach a consensus, which makes transactions faster.

    Cons of PoS:

    ● An additional stimulus to centralization. The general principle that “the greater the amount of currency, the higher the potential rewards” gives network members an additional impetus to save currency. Although the network will be protected from a 51% attack, hypothetically, there is a chance of 51% of funds being accumulated in the hands of one person, thus causing subsequent control of decision-making. This kind of situation is unlikely in bigger systems, whereas smaller networks can be exposed to a possible scenario like this.

    ● Threat of forks. In the conventional Proof-of-Stake pattern, the most rewarding behavior of members is creating forks for repeated fund spending. It is for this reason that the PoS mechanism is further complicated by mandatory stakes and other terms in an effort to close the “gaps” in network safety by introducing an economic factor to deter unscrupulous players.