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Proof of Stake (PoS) in Blockchain

Proof of Stake (PoS) is a type of algorithm which aims to achieve distributed consensus in a Blockchain. This way to achieve consensus was first suggested by Quantum Mechanic here and later Sunny King and his peer wrote a paper on it. This led to Proof-of-Stake (PoS) based Peercoin.

A stake is value/money we bet on a certain outcome. The process is called staking.
A more particular meaning of stake will be defined later on.

Why Proof-of-Stake:
Before proof of stake, the most popular way to achieve distributed consensus was through Proof-of-Work (implemented in Bitcoin). But Proof-of-Work is quite energy(electrical energy in mining a bitcoin) intensive. So, a proof-of-work based consensus mechanism increases an entity’s chances of mining a new block if it has more computation resources. Apart from the upper two points, there are other weaknesses of a PoW based consensus mechanism which we will discuss later on. In such a scenario, a Proof-of-Stake based mechanism holds merit.

What is Proof-of-Stake:
As understandable from the name, nodes on a network stake an amount of cryptocurrency to become candidates to validate the new block and earn the fee from it. Then, an algorithm chooses from the pool of candidates the node which will validate the new block. This selection algorithm combines the quantity of stake (amount of cryptocurrency) with other factors (like coin-age based selection, randomization process) to make the selection fair to everyone on the network.

A typical PoS based mechanism workflow:

  1. Nodes make transactions. The PoS algorithm puts all these transactions in a pool.
  2. All the nodes contending to become validator for the next block raise a stake. This stake is combined with other factors like ‘coin-age’ or ‘randomized block selection’ to select the validator.
  3. The validator verifies all the transactions and publishes the block. His stake still remains locked and the forging reward is also not granted yet. This is so that the nodes on the network can ‘OK’ the new block.
  4. If the block is ‘OK’-ed, the validator gets the stake back and the reward too. If the algorithm is using a coin-age based mechanism to select validators, the validator for the current block’s has its coin-age reset to 0. This puts him in a low-priority for the next validator election.
  5. If the block is not verified by other nodes on the network, the validator loses its stake and is marked as ‘bad’ by the algorithm. The process again starts from step 1 to forge the new block.

Features:

Advantages of PoS:

Weakness of a PoS mechanism:

Blockchains using Proof-of-Stake:

Variants of Proof-of-Stake:

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