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Since cryptocurrencies are not under a centralized authority to track transactions and balances, their underlying systems require a method for users to agree on who owns what.
Because any user can potentially attempt to modify the shared ledger of historical transactions, developers have devised methods to prevent fraud or mistakes from occurring. They accomplish this by aligning users' economic incentives around maintaining correct records. Using proof of stake is just one of the solutions.
Along with the PoS model, there are customized versions such as Leased Proof of Stake (LPoS) and Delegated Proof of Stake (DPoS) mechanisms. In addition, there are hybrid consensus systems such as Hybrid PoW/PoS, which incorporates features of both PoW and PoS models.
The Proof of Stake (PoS) system was created as an alternative to Proof of Work (PoW). Miners on PoW-based blockchains, such as Bitcoin, can only be rewarded if they find a valid solution to a cryptographic puzzle. This is what qualifies them to add the next block of transactions to the blockchain.
In contrast, blockchains that use the PoS concept reach consensus through a process that selects validators based on a number of criteria. The implementation of block selection varies, however it typically takes into account staking size and how long coins are being staked ("currency age"). In most situations, the block selection technique is a randomization mechanism, which means that validators take turns forging new blocks.
Block creators are referred to as validators in PoS. A validator verifies activities, checks transactions, votes on outcomes, and keeps records. Block creators are referred to as miners in PoW. Miners work to solve for the hash, a cryptographic number used to validate transactions. They are given a coin in exchange for solving the hash.
The 51% attack, long promoted as a threat to cryptocurrency enthusiasts, is a problem when PoS is utilized, but it is unlikely to materialize. A 51% attack under PoW occurs when an entity controls more than 50% of the miners and utilizes that majority to modify the blockchain. A group or individual would need to own 51% of the staked coin in PoS.
Controlling 51% of the staked coin is prohibitively expensive. If a 51% attack occurred in Ethereum's PoS, the network's honest validators may opt to reject the altered blockchain and burn the offenders staked ETH. This encourages validators to act in good faith in order to benefit both the cryptocurrency and the network.
Most other PoS security features are not publicised, as doing so may provide an opportunity to circumvent security mechanisms. However, most PoS systems include additional security features that enhance the inherent security of blockchains and PoS algorithms.
When considering whether to invest in a cryptocurrency, it is critical to compare proof of stake and proof of work. Even if you believe proof-of-stake cryptocurrencies are better, keep in mind that not all proof-of-stake blockchain systems are equally valuable.
As always, do your homework on the cryptocurrency project you want to support. Determine what it is trying to do and whether other solutions on the market are able to do it better.
The first cryptocurrency consensus mechanism was proof of work. With the launch of Peercoin in 2012, an alternative, proof of stake, was introduced. It chooses transaction validators depending on...
Cryptographic algorithms can be classified into three categories based on key usage: symmetric encryption, asymmetric encryption, and hash functions. Each of these serve unique and...
A validator is a node in a proof-of-stake (PoS) blockchain network that is responsible for validating transactions and maintaining the integrity of the network. In a PoS blockchain, validators are chosen to...
Orphan blocks are blocks in a blockchain that don't belong to the main chain. This happens when two miners create blocks at the same time. While they are not...
This system, known as PoS (proof of stake), is used by many blockchains to validate new transactions and add new blocks. It helps ensure that only...
Proof of Burn is a consensus algorithm utilized by certain blockchains to validate transactions and ensure their validity. It serves as an alternative to the more commonly used proof of work and proof of stake algorithms.