What is Proof Of Stake (POS)
Proof Of Stake Protocols
Proof-of-stake is a consensus protocol that is based on staking tokens to verify and validate transactions.
In essence, it was designed as a way to scale and build upon proof-of-work (which you can read about here).
Some coins use both proof of stake and proof of work, while some use one or the other (or neither).
What is Consensus?
Consensus is a computer protocol in which nodes agree on the same world state.
Essentially, Consensus helps to fix the Byzantine generals problem whereby none of the generals honestly know if the other generals want to proceed or not.
It’s a more significant issue and one we will cover in another article.
For now, understand that consensus needs to be achieved to make sure that transactions are valid.
This proof-of-work is the consensus protocol that allows all nodes to agree on the network's system.
In other words, this is why there can be a trust-less society through cryptocurrency.
How Proof-of-Stake Works
While POW uses a protocol that has nodes compete and race for the nonce number that cracks the puzzle...
POS works in a different way - taking out the central model of cracking the puzzle.
While proof of work uses the model of getting rewards from dedication and finding the nonce, POS gives rewards to all who stake.
Transitioning the ability for everyone with the amount of stake (for ethereum that is 1000 eth) to reap the rewards.
By holding this “stake,” it makes it easier to punish those who try to split the chain.
This way, instead of being able to create a fork, they are punished and do not reap any rewards for staking their tokens. Staking happens because when two nodes can’t agree on the next block there needs to be an incentive.
There is the looming ability for them to lose their stake if they don’t pick a side.
Often these scenarios happen because the network broke down or the node went offline during a transaction.
This allows ethereum to be quick. Without the long decisions, it can take from not having an incentive. If the participant ends up trying to decide between two sides, they halve their ability to solve the puzzle and thus have reduced chances of reward.
By holding the stake in proof-of-stake, a miner can’t choose both sides, or they could lose their bond intended at stake.
Proof of stake comes at a bit of a different methodology than proof-of-work, and some think it less efficient.
Although it can still develop consensus.
And with many coins, like ethereum, practicing both may find the best of both worlds.
Participants with enough tokens should stake their coins as it is an easy way to reap the rewards.
Similar to a master node this is something which only requires holding tokens.
Buy enough or get in early, like with Ethereum, and you will end up happy.
Thanks for reading,
The GCA Team