What is Proof-of-Stake – PoS?

You’re probably here after reading our page on different consensus algorithms. One of the most common consensus mechanisms is Proof-of-Stake.

Proof of Stake PoS Consensus Algorithm

What is Proof-of-Stake (PoS)?

Proof-of-Stake was introduced to tackle various challenges Proof-of-Work has; for example, PoS requires significantly less electricity and can also be run on cheap computers. NEO, Lisk, Solana, and Stratis are examples of blockchains that have implemented PoS, and Ethereum has also planned to switch to PoS. So, how is consensus achieved between validators, and how secure is PoS really?

How does Proof-of-Stake (PoS) work?

The term Proof-of-Stake refers to the stake or the share you have in the network to help power it. You need to have skin in the game before you can create new blocks. The more tokens you own, the more weight you have on the network & enabling you to create blocks more frequently. If you have 51% of all the tokens in your possession, you can take over the network, similar to 51% of the hashing power in a PoW network. Because you have to buy tokens from the market, it costs a lot of money to get 51%, which is why this is considered safe.

Before a block is added to the chain, a period of consensus is required. Each striker can propose a block during this period, which all other strikers save. In this block, he “strikes” a number of tokens by giving a reference to when he received these tokens. The block is weighted by looking at how old this transaction is and how many tokens are staked. The proposed block that comes out best wins the round, after which this transaction cannot be re-staked.

Adding a new block

To combat spam, there is often an additional requirement to propose a block. This is a mathematical requirement and depends on the block hashes that a staker can generate.

Because these hashes depend on the incoming transactions a staker can use, anyone can only generate a small number of hashes relative to the vast number of hashes required in Proof-of-Work. Occasionally, no one can generate a block because no one meets this requirement. To solve this, the network can use PoW as a fallback method. PeerCoin, the creators of Proof-of-Stake, use this. Many PoS blockchains forked PeerCoin, and also use this method of PoS.

Advantages

  • Consumes much less electricity
  • Better secured against third parties

Disadvantages

  • More risk of a 51% attack
  • More centralized than PoW