Proof of Stake (PoS) is a consensus mechanism used in distributed systems, especially cryptocurrencies, to secure networks, verify transactions and achieve consensus in a more energy-efficient way than Proof of Work (PoW). Below is an expanded definition of Proof of Stake, covering its key aspects:
- Basics of the mechanism:
- Definition: Proof of Stake involves network participants (validators) being selected to create new blocks and verify transactions based on the number of tokens (stakes) they hold and how long they have held them.
- Purpose: The main goal of PoS is to ensure network security and achieve consensus in a more energy and environmentally efficient way than PoW, reducing the risk of centralizing computing power.
- Technical process:
- Stacking: Network participants lock their tokens as security (stake). The greater the number of tokens staked by a participant, the greater the chance of being selected as a validator for a new blockchain.
- Validator selection: Validators are randomly selected from among the stakers based on various algorithms that can take into account both the size of the stake and the time of ownership. These algorithms can be based on methods such as randomization, stak age, or a combination of both.
- Block creation: The selected validator creates a new block, verifies the transactions in it and adds it to the blockchain. The other validators verify the validity of the new block.
- Rewards and penalties: Validators receive rewards in the form of additional tokens or transaction fees for correct block creation. If a validator acts maliciously or makes a mistake, his stake can be partially or completely confiscated (slashing).
- Security and difficulty:
- Network Security: PoS secures the network through the financial interest of the participants. An attacker would have to hold a significant amount of tokens, making the attack economically unviable because the attacker would risk losing his stake.
- Difficulty of attacks: Since the validators are randomly selected, the risk of a 51% attack is greatly reduced compared to PoW, where controlling most of the computing power is required.
- Applications and disadvantages:
- Applications: Proof of Stake is used in various cryptocurrencies, such as Ethereum (after the transition to Ethereum 2.0), Cardano, Tezos and others. Thanks to its energy and environmental efficiency, PoS is gaining popularity.
- Cons: Critics of PoS point to the possibility of centralization, where the largest token holders have the most influence over the network. In addition, there is a risk of creating a so-called “get richer get richer,” which could lead to further concentration of tokens in the hands of a few participants.
- Comparison with Proof of Work:
- Energy efficiency: PoS is much more energy efficient than PoW, as it does not require huge computing power to secure the network.
- Security: Both mechanisms have their own unique methods of securing networks, but PoS relies on the financial commitment of participants, while PoW relies on computational work.
- Centralization: PoW is prone to centralizing computing power in mining farms, while PoS can lead to centralization in the hands of the largest token holders.
- Examples of implementation:
- Ethereum 2.0: One of the best-known examples is Ethereum, which moved from PoW to PoS to improve scalability, security and energy efficiency.
- Cardano: Cardano uses the Ouroboros algorithm, one of the first research-verified PoS algorithms.
- Tezos: Tezos uses a PoS consensus mechanism with additional features such as formal verification of smart contracts.
In summary, Proof of Stake is an alternative consensus mechanism that offers many advantages over traditional Proof of Work, including higher energy efficiency and potentially greater scalability. Despite some challenges related to token centralization and concentration, PoS is gaining ground as the preferred consensus mechanism in modern cryptocurrencies and blockchain systems.
