The traditional Proof of Work algorithm, the newer Proof of Stake algorithm for Blockchain validation is making the process much simpler and secure.
Security and verification are the two pillar upon which any transaction in the Cryptocurrency industry stands. In the industry vocabulary, crypto mining is the process by which transactions are verified by stakers. In return, the stakers earn their rewards.
Given the automated nature of the industry, players have the need to verify every single bit of information produced. Moreover, they also have to ensure that none of the invalid blocks gets entry into the blockchain.
As of now, there are two, primary, Blockchain consensus algorithms which are used for the process of the aforementioned verification. Proof of Work (PoW) is the more traditional approach and is eventually giving way to a more modern approach, known as the Proof of Stake (PoS).
In this article, the primary attempt is to break down the concept of Proof of Stake (PoS) and to enlighten the reader with regard to its aspects such as its implementation and validation. Beyond that, we would also discuss briefly the concerns relating to proof of stake attacks.
By ‘stake’, in this context, we are referring to a particular value of cryptocurrencies which the miner must hold to be able to verify a transaction. Each miner is regarded as a node and a node’s mining capacity is directly determined by the amount staked by her.
Basically, within the PoS algorithm, a node can only verify as many transactions as equals the number of coins in her wallet. In turn, this also means that the number of coins owned is directly proportional to the mining capacity of any given node.
Having outlined a definition for the PoS algorithm, let us now move forward to the more pertinent question regarding the method of its implementation.
Broadly speaking, the functioning of the algorithm is motored by a voting process, used to select the miners for any given transaction. The protocol is rather random and the owners of the transaction vote for the miners and eventually assign them the task of validating.
Varying from one blockchain to the other, pre-defined terms mandate the minimum amount of coins a miner must have for qualifying as a node for the voting process.
After the voting, the chosen miner (now node) has to deposit a certain amount of crypto-funds into what is known as a “staking wallet”. This amount is used to determine the node’s mining capacity.
Given that a node has, say, 30% of all the coins on the Blockchain, she can validate only 30% of the transactions.
At times, stakers pool their resources so as to enable themselves to validate higher-value transactions for which the rewards are obviously higher. On the completion of the process, the reward is distributed amongst the parties involved. As may be understood, this process requires that the people involved trust each other.
Primarily, the significance of the PoS algorithm lies in the fact that it helped the crypto industry overcome many challenges posed by the traditional PoW validation protocol. In fact, this has also played a major role in fuelling the growing popularity of the PoS algorithm.
Despite all the benefits of the PoS system outlined hitherto, certain substantial arguments have been placed against it. In doing so, some experts have apprehended a specific kind of Proof of Stake attacks, emanating from the determination of mining capacity on the basis of the number of coins.
It has been feared that the working of the PoS algorithm will lead to a capture of the market by those who own greater amounts of cryptocurrencies.
However, the process itself isn’t bereft of its own remedies for these concerns, especially through the concept of a coin’s ageing.
A coin at stake can discover new blocks, only after remaining in that state for, usually, a month at the least. During this period, the investor cannot use these coins in any other manner. Moreover, they receive any reward on a coin only after the coin has completion of a set tenure. Also, a coin expires after this period and has to traverse the entire process all over again.
To conclude, it can indeed be said that the PoS consensus is playing a transformative role in the cryptocurrency industry. Above all, the simplification of the mining process has played a major role in the rising popularity of the cryptocurrency.
By eliminating many risk factors, PoS has also enhanced the security of the industry. In all, further developments in the PoS algorithm is expected to, or let’s say, is bound to ensure a brighter future for the cryptocurrencies, as well as, their traders.
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