Proof of Stake (PoS) – A new Crypto Generation
What is Proof of Stake and will it change the future of crypto? All you need to know in this article.
The Background
What is Proof of Stake?
Proof-of-Stake is an alternative consensus mechanism for public blockchains. Instead of the hash rate, the stake of a user is decisive in the proof-of-stake mechanism. The stake is a certain number of tokens assigned to the user’s own validator node. The larger the stake, the more likely it is that this user will be selected to validate the next block. Roughly speaking, the proof-of-stake mechanism can be compared more to a public company compared to proof-of-work – whoever owns a larger share in the company normally receives more voting rights that entitle them to make decisions.
Nevertheless, an important difference is that in the proof-of-stake mechanism, a random algorithm is used for the consensus-building of a blockchain network. This draws a participant who subsequently has the right to mine the block. Put simply, each token is then a winning ticket – consequently, users with a higher stake (= more tickets) also have a higher probability of being selected.
Technology
How does Proof of Stake work?
Users can assign tokens from the blockchain to their node (this is referred to as delegating), which they want to validate. Depending on the share of the total supply attributed to the validator node, the probability of being selected as a validator by the network increases.
If the node builds a valid block as defined by the network rules, it receives the block subsidy as a reward. Fraudulent nodes, however, are punished by the network – for example, by freezing the stake.
Comparison
Diffrence to Proof of Work
What is the difference between Proof of Work and Proof of Stake?
Instead of computing power, the probability of generating a valid hash using the proof-of-stake method depends on the amount of coins deposited (staked).
Proof of Work
The proportion of computing power in the entire network of miners is decisive for the probability of successfully mining a block. (Read more about Proof of Work Mining)
Proof of Stake
The proportion of tokens in the entire network of miners is crucial for the probability of successfully mining a block.
Calculation
How is a validator chosen?
Mining a block usually involves using hash functions to find a specific value. Since the hash functions are not reversible, you can’t simply calculate what X you need to put into the function to get the Y you want. Instead, miners solve the problem by trying many values (see Proof of Work for more on this). While there are different types of these calculations, the following simplified analogy can be used: Find a hash value that satisfies the given properties
The more stringent the desired properties are, the more difficult it becomes to find a value that satisfies all these requirements. However, in proof-of-stake, one of the ways we influence the difficulty is with a user’s stake – the higher the stake, the lower the requirements for the result. This makes it easier for users with higher stakes to hit results with these properties.
Mathematically, we can think of this problem as follows (simplified):
Search Space = [0, 50 + 5*Stake]
The miner must find a result that is in the range of 0 and 50+5*Stake. If the user has a stake of 0, then the search space is very small, in this example more precisely between 0 and 50.
If, on the other hand, the user has a stake of 10, the search space expands to the interval from 0 to 550. Thus, there are significantly more favorable results and the user has a higher probability of finding such a random result. Therefore, the probability of success in the proof-of-stake mechanism depends on the size of the stake and analogously maps the idea of a company share with voting rights.
Conclusion
Pros
| Staking makes it easier for you to run a node. It doesn’t require huge investments in hardware or energy, and if you don’t have enough ETH to stake, you can join staking pools. |
| Staking is more decentralized. It allows for increased participation, and more nodes doesn’t mean increased % returns, like with mining. |
| Staking allows for secure sharding. Shard chains allow Ethereum to create multiple blocks at the same time, increasing transaction throughput. Sharding the network in a proof-of-work system would simply lower the power needed to compromise a portion of the network. |
Cons
| Proof-of-stake is still in its infancy, and less battle-tested, compared to proof-of-work |
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Yes, this will be the future! Apart from the fact, that this is much better for the environment, PoS is much easier for everybody. Cryptocurrencies should be easy to use for everybody and with PoS the „mining“ will become accessible for all.
That will be a great update for ETH 😀