Blockchain technology was initially developed using the ‘Proof-of-Work’ consensus mechanism by S. King and S. Nadal. However, due to ‘ mining difficulties and high energy consumption, a distinct approach called the ‘Proof-of-stake’ mechanism was adopted later in 2011 to verify new blocks and add them to the blockchain.
In this article, we will be talking about the
‘Proof of Stake’ consensus and related aspects. So, let us first study Proof of Stake.
What Is Proof Of Stake?
Proof of stake (PoS) is a consensus algorithm in which random validation nodes (validators) stake the blockchain network’s native tokens to the network to authenticate new blocks in the current blockchain. It secures the blockchain from 51% of attacks and allows only genuine users to add recent transactions. The fundamental idea behind this is that the nodes decide which blocks will be added to the blockchain. If two transaction blocks are published simultaneously, the nodes determine the order by voting.
Proof-of-stake reduces the amount of computational power required to verify blocks and transactions that add up to the blockchain. . Each validator’s vote depends on the size of the stake. Thus, the number of crypto coins you are using sums up your participation in the transactions you are carrying out.
Proof of Stake is somewhat identical but differs from the Proof of Work protocol in the following ways:
Ø At present, Ethereum is operating on a Proof of Work consensus, but it will soon switch to the Ethereum Proof of Stake (PoS). This transition will reduce energy consumption by 99% and reduce the gas fee.
Ø Validators with extensive holdings influence transaction verification making the Proof of Stake less democratic.
Ø Proof of Staking needs nodes to balance stakes for validating the transactions
A Typical Workflow of PoS (Proof-of-Stake) Mechanism:
Ø The computer nodes make the transactions that the PoS algorithm makes.
Ø All of these nodes battling for getting validated raise a stake. This stake is linked to ‘coin-age’ or ‘randomised block selection’ to select the validator.
Ø The validator authenticates the transactions and then publishes the block making the stakes remain locked so that the nodes on the network can make the new block right.
Ø The validator receives the stake and reward.
Ø In case the other nodes on the network don’t verify the block, the validator will lose the stake, and the process then starts from step 1.
In a nutshell, the PoS mechanism has two parts in which it works. First, a validator node deposits blockchain tokens as a stake which are then blocked for a certain period. It is vital to understand how the higher stake nodes are prioritised and how PoS makes this option economically unfeasible.
The second part of PoS is associated with the validator selection for generating the blocks using the two methods outlined below:
i. Coin Age Selection Method: in this method the time the coins are staked and the total staked coins are considered. The moment a node is pointed out to the validator, the coin-age is zero.
ii. Randomized Block Selection: This method focuses on validators with a combination of highest and lowest stakes. It allows the participants of every network to view the stake put forward by a validator node.
What is the Role of Blockchain Technology for the future of PoS?
In the past years, blockchain technology has been criticised for the negative impact on the environment they create each day due to extreme energy consumption. For example, the Bitcoin Proof of Work (PoW) network consumes 71 terawatts every hour. In the later years, the trend figures are anticipated to reach new heights, with the ‘mining’ process becoming more complex. Thus, advanced mining setups, requiring more energy, will operate.
PoS works on the consensus mechanism. In this, participants in the blockchain network approve transactions without a central authority. Its protocols ensure that all the network participants are present in a single blockchain.
With this mechanism, a blockchain network can:
· Work without a central authority
· Establish a single blockchain version
· Ensure security and transparency in the blockchain network
At present, different types of consensus algorithms such as Proof of Work (PoW), Proof of Stake (PoS), Practical Byzantine Fault Tolerance (PBFT), and Proof of Burn (PoB) exist. Proof of Work (PoW) and Proof of Stake (PoS) are the most popular.
The Proof of Work (PoW) depends on the nodes’ capability of solving complex mathematical problems requiring exceptional computing power, electricity, and a high initial setup cost.
On the other hand, the validators of PoS need to keep their tokens at stake instead of calculating puzzles, reducing electricity consumption, and blocking the generation period without centralising resources.
Ø PoS is a consensus algorithm that was put forward to overcome the difficulties of mining and the high energy consumption by the miners
Ø The Proof of Stake algorithm secures the blockchain from 51% attacks
Ø The PoS algorithm works using two methods: Coinage selection and randomised block selection
Ø Blockchain technology plays a significant role in the PoS algorithm mechanism