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The advancement in technology has led to the emergence of blockchain which is the base of cryptocurrencies. With the lack ot involvement of a third-party, the blockchain has to have a means of verifying transactions which is what has led to the various consensus algorithms. Here, we will be looking at the Proof-of-Stake consensus mechanism.
The Proof-of-Stake is a consensus algorithm which was introduced in 2011 during the Bitcoin talk forum. The mechanism was introduced in other to improve the inefficiencies of the already existing proof-of-work which is resource, power, and energy consuming.
The Proof-of-Stake works by allowing holders of the blockchain token to stake their coins and in return serve as validator nodes for transaction verification purposes.
These nodes earn incentives on their staked coins and are rewarded using the native token of the blockchain on every successful block of transaction added to the blockchain. Whereby the blockchain serves as a digital ledger.
Choosing a validator node to verify a particular transaction is done randomly with more chances of selection given to those with more stakes although some Proof-of-Stake protocols choose validators based on how long each have been active on the blockchain.
Following the fact that most Proof-of-Stake blockchains choose validators based on the quantity of stakes, has led some users into putting their stakes together in what can be regarded as a pool. This is increase their chances of being selected to validate transactions and in turn they share the validation reward based on the percentage contributed by each user.
Examples of blockchain that uses Proof-of-Stake
- Solana
- Binance Smart chain
- Pokaldot
- Avalanche
- Cardano, etc.
- Decentralization
The Proof-of-Stake mechanism is decentralized due to the affordability to run as node which only requires staking of the native token of the blockchain. This encourages more users to compete for nodes with the selection based on randomization.
- Scalability
The Proof-of-Stake algorithm is very scalable because of its ability to verify multiple transactions faster. This is the major issue with proof-of work which led to the emergence of Proof-of-Stake. Also, the Proof-of-Stake does not require complex methods in other to verify transactions.
- Transaction cost
The cost of transaction on Proof-of-Stake mechanism is minimal which explains why it is being largely adopted by users.
- Minimal energy consumption
Energy consumption is minimal because transaction verification does not require complex and sophisticated computers as seen on the proof-of-work.
The major issue with Proof-of-Stake is that it mostly allow users with high stakes for serve as validator nodes. This creates disparity between the rich and the poor because the rich only gets to serve as nodes while the poor plays no part in validation due to their inability to purchase the native token. This further creates a risk of possible future centralization.
Also Proof-of-Stake sometimes doesn't allow users to withdraw their stake anytime but are required to wait for a stipulated amount of time before their staked will be released to them. This sometimes affect users in matters of urgency.
- DIFFERENCES
| PROOF-OF-STAKE | PROOF-OF-WORK |
|---|---|
| Proof-of-Stake is less expensive to operate | Proof-of-work is more expensive because it requires validation using sophisticated technologies. |
| Proof-of-Stake is environmental friendly | Proof-of-work is not environmental friendly because carbons are released during the mining process. |
| Proof-of-Stake allows more users to participate | Proof-of-work only permits users who can afford the expensive mining equipments. |
| Proof-of-Stake is less secure | Proof-of-work is more secure because it validates transactions by solving complex mathematical calculations. |
| There's lesser transaction cost | Transaction fee is higher |
| There's an increased transaction speed | There's a reduced transaction speed when compared to Proof-of-Stake. |
- SIMILARITIES
Both are consensus mechanism used in validating transactions on the blockchain.
They both encourage users to work together in other to increase the chances of being selected.
They both ensure the security of the blockchain although the security levels are different.
They both ensure the elimination of a physical third-party during transaction.
In conclusion, the Proof-of-Stake is a consensus algorithm which was developed due to several problems associated with proof-of-work such as high transaction cost, Hugh energy consumption, etc. In as much as the Proof-of-Stake is scalable and has some other interesting features, the Proof-of-Work is still more secure and this is what has led to the emergence of other new consensus mechanisms.