Proof of Stake (PoS): what is Proof of Stake?

With the rise of cryptocurrencies and the use of the technology on which they are based, blockchain, new needs have arisen, especially in terms of security and decentralisation. Proof of stake, or proof of stake, is the new consensus protocol that has become established in the field of digital assets because it is more environmentally friendly, secure and efficient than its predecessor.

Learn about the consensus protocol used in Blockchain technology.
Communication Team

Telefónica

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The consensus algorithm is a mechanism used by the blockchain network to check the status of a record after a transaction has been executed. Consensus is a general agreement, which in the case of blockchain means that at least 51% of those involved in validating a block agree on the state of the network.

This algorithm is a guideline for all nodes (or devices) that function as a connection point and are part of the network of connected computers, where information is verified and transmitted in a secure and work-friendly way.

What is Proof of Stake (PoS)?

Proof of Stake, also known as proof of stake, is currently one of the most widely used consensus protocols in blockchain-based networks. It has been able to replace the previous protocol, Proof of Work (PoW), which was used for a long time with great success in the main cryptocurrencies, such as Bitcoin and Ethereum.

Unlike the PoW protocol, proof of participation authorises transactions in such a way that the participants validating each block have to fulfil a number of requirements. One of these requirements is to participate with their own cryptocurrencies. Thus, the more digital coins they own, the more rewards they receive for confirming transactions, and the more likely they are to continue participating in this process.

Why was the participation test created?

In 2011, developer Sunny King established the participation protocol, although it was not officially presented until 2012. His main goal was to find out the problems and weaknesses that the PoW protocol might have, and to find a solution that would solve these complications.

The key areas for improvement focused on poor adaptability, as well as slow speed in reviewing and confirming new blocks of digital assets, created by other validators. The function of validating a block is called certification or attesting.

While the mining process carried out under the PoW was energy-intensive, the participation-based consensus algorithm is more energy-efficient and does not require a large amount of processing power. Nor does it have such high hardware requirements. The reason for this is that in this type of network, the nodes are the validators. These validators have to block (stake) a certain amount of their own digital coins to guarantee their participation in the certification procedures. In exchange for their intervention, the nodes receive new rewards or coins. The larger the amount of coins blocked, the more likely to be selected to validate a transaction or add new blocks to the chain, although validators are chosen at random.

In this way, it solves the problem of lack of scalability, as it is able to verify nodes quickly, positively impacting the scalability and speed of the network.

It is also more secure from cyber-attacks, as digital criminals must have to “put in play” a large amount of coins to take control of the system (that 51% of the consensus).

Another major fear of networks using PoW was cyber attacks. Criminals can take over the computation of the network by owning 51% of the pool to achieve consensus. With a PoS system, it is unlikely that an attacker would own 51% of all cryptocurrencies, because if the criminal were to carry out such a cyberattack, the value of digital currencies would fall by itself.

How does the participation test work?

The operation of the proof of stake is simple compared to other consensus algorithms. Participants or validators bet a number of cybercoins to guarantee their involvement in the validation process. Although the procedure for choosing validators is random, the probability of being selected to execute the transaction increases if the validator blocks a large number of coins.

Validators participating in the consensus protocol have a strong financial interest in keeping their cryptocurrency network integrated, and any malicious move may result in the loss of the digital values contributed.

Proof of Work vs Proof of Stake

Proof of Stake, unlike Proof of Work, is more energy efficient as it does not require nodes to have very powerful hardware to carry out their activity. This helps drive the decentralisation characteristic of the blockchain, and allows for an alignment of the goals and incentives of the network components.

In addition, thanks to its random selection system, those with the most cryptocurrencies are more likely to be chosen, so the rewards are proportional. Also, the security of the network is extensive, attacks cannot reach at least 51% of the digital currencies in the blockchain network.

However, like all consensus protocols, PoS systems also have weaknesses, just like their predecessor. The risk of losing all funds to malicious attacks is still present, as they require direct connection to the user’s wallet. Therefore, if a security problem occurs, hackers can exploit it and steal all the funds in the wallet.


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