Crypto 101: Validating the Validator: What is Crypto Proof-of-Stake?

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Crypto 101: Validating the Validator: What is Crypto Proof-of-Stake?

A new way to validate the validator

Proof-of-Stake is a transaction verification mechanism that has seen wide adoption among blockchains. It has become popular due to its perceived advantage, and the ease with which users can set it up.

TL;DR

  • Proof of Stake is a blockchain consensus mechanism that relies on token staking
  • It saves energy and discourages fraudulent practices
  • It randomizes transaction verification, eliminating the fierce competition prevalent in the Proof of Work system.

 

Proof-of-Stake Definition

Proof-of-Stake is a blockchain consensus mechanism used for transaction verification and blockchain security. In the PoS mechanism, users are required to stake a predefined number of tokens in order to be admitted as a network validator on the particular blockchain.

The token staked serves two prime purposes. First, it serves as a guarantee that a validator is committed to their job, which is to verify transactions and accumulate blocks of transactions. Second, PoS is a key security mechanism as it helps guard against manipulations. Usually, validators will think of the risk of losing all of their stakes if they ever wanted to manipulate the system. The loss potentially outweighs the reward.

In a Proof-of-Stake system, the blockchain usually has a minimum threshold for staking, however, validators usually stake multiple rounds so as to increase their chances of being picked for transaction verification. For instance, the POP Network has a minimum staking threshold of 50,000 POP tokens for each validator. In PoS, the underlying blockchain algorithm picks a validator at random to verify a transaction.

Advantages of Proof-of-Stake

 

Consumes Less Energy

Foremost, PoS saves a lot of electrical energy. It does not require massive computational power that forces validators to set up energy farms and other sophisticated mining equipment. With the POS, validators mostly make use of their computers, powered by a virtual machine that runs concurrently with other systems to maintain consensus on the network.

In PoS, staking replaces token burn and personal computers replace heavy mining equipment and farms.

Rewards are Randomized

Back to Proof of Work, all miners have to aggressively compete before they can earn rewards. The disadvantage here is that a group of miners who have higher computational capacity can easily outdo individual and small miners. Proof-of-Stake randomizes transaction verification and it does not require solving complex mathematical puzzles to verify transactions.

Security on the Blockchain

There are thousands of validators on most PoS systems. As a result, it is almost impossible for a single validator to circumvent established protocols. 

As a deterrence, a validator on a proof-of-stake blockchain loses all its stakes if caught for malicious activity. The risk outweighs the reward. This further encourages validators to work and increase their stakes to earn more rewards and stay compliant with laid down rules and regulations. 

Conclusively, PoS creates a better alternative to the PoW blockchain solution.

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