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As stated in previous articles, crypto currencies make use of a decentralized open ledger that is accessible by any and everyone within their networks. Transactions are updated by miners that are selected based on the governing algorithms of the particular network. These algorithms are designed to guarantee the safety of transactions within the net work as well as ensure full transparency and honesty on the part of miners. The proof of stake(POS) is one of such algorithms or mechanisms for making sure that miners do not just add transactions indiscriminately, and also that all other miners agree as to what the most current version of the ledger will look like.
In this piece we will be exploring the Proof of Stake (PoS) in a bit of detail to:
- understand how the system/concept works
-discover its flaws as well as advantages as relates to the characteristics of the #block-chain ecosystem, in terms of ideals, like anonymity, fairness, security, and decentralization all of which are like guiding principles that govern the #crypto currency community as a whole
-and explore some use cases and attempt to analyse them based on performance and their current application.
WHAT IS THE PROOF OF STAKE (POS) PROTOCOL ALL ABOUT?
The proof of stake or PoS protocol is basically a way in which some #blockchain networks achieve consensus ie decide who gets to update the public ledger with the next block of transaction, and therefore receives the block reward. In the PoS protocol, the right to update the ledger is awarded based on a combination of several factors that relate to the quantity and age of the ‘coins’ withing the miners wallet.
This concept can be seen to be in contrast with the Proof of Work protocol which requires miners to prove they have expended computational resources towards solving a cryptographic hash. The proof of Stake system was first used by #peercoin blockchain in 2011 and was a solution that arose out of the concern for the problem of high energy consumption, which is a major challenge for the POW system used by #Bitcoin and #Ethreum. It is common knowledge that the current sum total of electrical power in use for bitcoin mining globally is sufficient to power some nations totally. And considering that Block rewards will continue to reduce with time, it will mean that the cost of mining with the POW system will continue to increase. The PoS protocol tries to solve this problem by delegating the authority to validate blocks to nodes (miners) based on the balance held within the wallet (quatity of their stake).
PoS based blockchains do not just award mining power to the holder of the highest amount of coins. That would lead to a greatly unfair system of consensus as one or two nodes will continuously win, rather they apply various rules to govern the selection process in order to make it as random, inclusive and decentralized as possible. Some of the selection principles include:
Randomized selection:
This principle is applied in the #NXT blockchain. It basically uses a mathematical formula that depends on the size of the stake and the lowest hash value in the cryptographic equation, to determine who gets to validate the next block. This system makes it possible to predict who will be selected to validate the next block as stakes are made public.
Coin-age selection
The coin age selection principle builds on the randomized selection concept. With this system, the number of days in which coins have remained unspent is multiplied by the number of coins to determined its #coinage. This value is then taken into consideration when determining the forger of the next block. Ones a set of coins have been used to validate a new block, the coin age resets back to zero. Also, in order to ensure that no forger is able to unjustly earn mining power by holding a large stash of old coins, the probability of mining the next block reaches a maximum limit after a set number of days.
The above mentioned are most popular variants of the PoS protocol. Though they offer improved efficiency, through energy saving and faster/more scale-ability for transaction, than the #PoW mechanism, they still lack complete security. Relying mostly on size of stake generally exposes the network to a certain degree of attack (though an expensive venture, it is possible to compromise the entire network with 51% of the circulating currency).
As such some other PoS networks chose to further improve the PoS system by increasing the criteria for selection of forgers. one of such is:
Delegated Proof of stake (DPoS)
DPoS the consensus algorithm that is applied by #EOS #STEEM and #Bitshares.
With DPoS, the network limits the forgers to a selected few nodes within the network. These nodes are selected through a voting process that is conducted regularly on the network by its users. Users vote for their trusted potential forgers/witnesses and the witnesses with the most votes are chosen and one of a certain number of the chosen forgers is selected at random to validate the next block. This system speeds up the rate of transaction without compromising the security or decentralized nature of the network.
Voting gives users the opportunity to select their most trusted witnesses/forgers. The weight of each vote is determined by the amount of stake held by the voter and voters can delegate voting power to trusted users. As a result, a user does not require a large stake to be assigned as a forger. For instance within the steem network a user despite possessing a small amount of steem may earn the right to forge a block if he/she received the most ‘upvotes’ for a content created for the day. More so the voting process in continuous and regular so that witnesses/forgers are constantly rotating to maintain the distributed nature of the ledger.
Some argue that the #DPoS protocol possesses a potential flaw, for example collusion between top selected forgers could result a compromise of the network. However, the randomness and variety of criteria involved in the forger selection process especially within networks like STEEM, make it less of a concern.
Still on improving the proof of stake consensus mechanisms, the ORBS blockchain includes points gained for positive behavior and general character of forgers when deciding which forgers validates the next block, in its randomized proof of stake (rPoS) protocol.
In summary, the proof of stake protocol seeks to improve on the short comings of its Predecessor -#PoW and does so in one major way; Saving energy.
Also, the #PoS protocol allows for faster transactions and as such, it creates more scaleable blockchain networks.
The PoS poses its own challenges and some of its critics claim that there lies a risk of not reaching consensus as forgers have nothing to loose unlike miners who have already invested computational power and energy to earn the right to mine.
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