Proof-of-Stake

Proof-of-Stake

For the first time, an alternative algorithm for confirming the reliability of new blocks in the blockchain chain was demonstrated in 2011, as part of the international Bitcointalk forum. The idea was to separate the verification process from mining, which requires an ever-increasing cost of electricity and computing power.

How does this algorithm work?

At the core of Proof of Stake or PoS was the pseudo-random process of selecting a node, which should act as a guarantor of the authenticity of a new block of the circuit. The algorithm takes into account a number of factors, including the period of storage of the share (stake), the state of the node, the size of the stake, and also the randomizer.

This does not require much electricity, so the process of obtaining new blocks cannot be called mining. Now it is forging. In addition, most cryptocurrencies that use PoS are based on the more classic PoW at the time of launch. And only when the number of participants and their total activity (and the amount on their account) has reached a certain level, switching to the Proof of Stake algorithm.

In addition, a significant difference between the two algorithms is that PoS uses a commission from a confirmed transaction as a reward. This means that the reward value of the validator node can vary.

Users who want to join the forging process should secure a certain share of their finances in the cryptocurrency network - the stack. Most often, there is a certain minimum below which nodes are no longer considered as candidates for validators. And at the opposite, the larger the share, the higher the chances that the automatic algorithm will select this particular node. It can be seen that in this process, the nodes with the largest stake will have an advantage. Therefore, additional functions are added to the algorithm so other participants can count on a reward. As an example, we can call "Random block selection" and "Coin Age Selection".

The first is a pseudo-random number algorithm that takes into account not only the size of the stake, but also the hash value. Moreover, the advantage is given to those who have less. That is - to later participants. But in any case, since the size of the stakes is open and public information, users can predict which of them has the greatest chance of becoming the next validator.

The second algorithm selects nodes based on the product of the total number of days of “experience” by the number of coins in the stack. But as soon as such a node becomes forger - age is reset to zero. And it takes some time to wait before the chances to become a validator again.

Also, keep in mind that PoS is not an algorithm that can be upgraded. Therefore, different cryptocurrencies may have different rules and methods for working with coins and users.

So, after the node is selected by the guarantor-validator, it checks whether the transactions in the block are valid. If so, then assures him and adds it to the chain. And gets its percentage of the transaction.

But if the user wants to withdraw coins from the stack and the earned reward, then immediately he will not be able to do this. Because the network must check the added blocks to make sure that they are reliable. “Verification of the reviewer” is an important element of overall security.

About security

How is the verifier checked? By the individual PoW algorithm - through the next forger, and not by the global, within the whole network. Forger's computer calculates the block hash in the same way and checks if it matches the chain. If it turns out that it is not, the last validator loses his reward, his stack and loses the right to continue to participate in operations. And since the reward is often substantially less than the share, fraud attempts are simply not profitable.

However, it is possible that fraud will not be detected. But for this to happen, fraudsters should have about 51 percent of the total network share of the stack. However, even then, due to the random selection of validators, there remains some possibility that fraud will open.

Conclusion

The main advantages of the PoW algorithm are high energy efficiency and security. In addition, such networks are more stable - due to the stable reward, which does not change from the total number of coins in the network. For example, in the Bitcoin network, the reward for each new block is gradually reduced. Even calculated when it will no longer compensate for the cost of electricity. For PoS networks this is not typical which attracts many new users.