What Is Proof-Of-Stake (POS)?
Proof-of-stake is a cryptocurrency consensus mechanism that eliminates the need for the energy-demanding alternative called the proof-of-work consensus algorithm. It is worth noting that this type of consensus mechanism deals with computational power, which creates disadvantages. But just like there are proof-of-stake disadvantages, there are also benefits of proof-of-stake.
What Is Staking?
Staking is an act in which individuals lock up a certain amount of cryptocurrency In exchange for a chance to validate new blocks of data to be added to a blockchain.
What is Proof-Of-Stake?
Proof-of-stake is a consensus mechanism that is a more efficient and less consuming energy method for mining cryptocurrency, processing transactions, and generating new blocks on a blockchain. Proof-of-stake reduces the electricity needed to verify blocks and transactions on the blockchain. It also keeps the cryptocurrency network secure.
In Proof-of-stake, Validators are selected by the blockchain algorithm to check each new block of data based on how much crypto a staker staked. The more crypto a holder stakes, the better the staker’s chance of being chosen by the blockchain algorithm to do the validating of blocks. When a block of transactions is successfully added to a blockchain, the successful validator is rewarded with the network’s native token.
The verification of blocks or the mining of cryptocurrency with Proof-of-stake is different from that of proof-of-work. In proof-of-work, miners validate blocks by being the first to solve a mathematical equation. While in proof-of-stake, to be a validator, you will have to offer a certain amount of your coins as collateral to validate blocks and earn rewards afterward. An example is Ethereum. Although this proof-of-stake method hasn’t been live yet, when it’s out or released, to be a validator or miner on the Ethereum blockchain, you will have to stake up 32 ETH. This shows you are serious about the blockchain and prevents any act of a validator trying to sabotage the network.
In Proof-of-stake, validators are selected randomly to mine cryptocurrency or validate the block, and block validators could be more than one. When a certain number of validators verify that a block is accurate, it is closed to move on. This method allows the mining system to be randomized rather than using the proof-of-work competition-based mechanism.
Benefits Of Proof-Of-Stake
• Proof-of-stake reduces the scalability and environmental sustainability that the Proof-of-work protocol couldn’t solve.
• Proof-of-stake consumes less electrical energy to mine or validates blocks by effectively substituting staking for computational power.
• Proof-of-stake is more secure. A block or a network can’t be sabotaged with the Proof-of-stake method. Since If a validator submits bad data or fraudulent transactions to sabotage the network, they could be punished by slashing. This means all their stake crypto will be burned — it is sent to an unusable wallet address where nobody has access, rendering them useless forever.
• Proof of Stake uses randomly selected miners to validate transactions. Unlike a competitive validation methods that Proof-of-work blockchain network deploy for consensus.
• Proof-of-stake can support more simultaneous transactions without compromising security or decentralization.
• Anyone can be a block validator with Proof-of-stake since no one has to buy expensive computer hardware or settle huge electricity bills to mine. As long as one has that certain amount required for staking to be a validator.
Lack Of Decentralization
Because the proof-of-stake method relies on delegates who are chosen to validate transactions and maintain the network, smaller nodes can easily be out-powered by larger ones, which makes PoS networks less decentralized over time. Larger nodes usually have their way and control the selection of delegates, making it really difficult for smaller nodes to participate in the consensus process.
Compared to proof-of-work, proof-of-stake seems to be less secure. Unlike proof-of-work which requires miners to have a large amount of computational power before they can participate in the validating of blocks, proof-of-stake only requires miners to have a large amount of token staked to participate in validating of blocks. This makes proof-of-stake less secure because it is possible for an individual or a group with malicious intent to gather up a lot of tokens and stake it to have the upper hand and cause security breaches and the theft of funds from users of the blockchain network.
Inefficient Use Of Resources
Because PoS systems require all nodes onthe network to be online in order to reach consensus, it can cause the system to have inefficient use of resources.
The proof-of-stake system has the poor scalability issue because PoS systems, compared to proof-of-work (PoW) systems, PoS is not that efficient when handling large numbers of transactions. And so, blockchains that use PoS can sometimes experience slower transaction speeds and higher fees than those that use PoW.
Centralization Of Power
Because PoS systems rely on a small number of “validators” or “delegates” to approve transactions and maintain the network, it can often lead to the centralization of power. It is possible for a single entity to be the only validator on a PoS blockchain network and have complete control over the blockchain network.