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Secure Proof of Stake in Blockchain: Explained
Proof of Stake consensus mechanism states that a person can either mine or validate block transactions in accordance with how many coins he or she possesses. Now, this implies that the more bitcoin or altcoins are owned by a miner, the more mining power he or she has.
The first digital currency to adopt this method of Proof of Stake was Peercoin.
Let’s discuss this in detail
What Exactly is Proof of Stake?
The Proof of Stake (PoS) consensus algorithm was first introduced back in 2011 on the Bitcointalk forum aimed to solve the issues of the most popular algorithm in use — Proof of Work.
Where both the algorithms share the same goal of reaching consensus in the blockchain, the process to reach this goal in for both is all different.
How Does This Mechanism Work?
The Proof of Stake algorithm utilizes a sort of pseudo-random election method of selecting a node to be the validator of the next block, which is based on a combination of some certain factors which could incorporate randomization, staking age, and the node’s wealth.
It is worth noting that in Proof of Stake systems, blocks are believed to be forged instead of getting mined. Digital currencies which use PoS usually start by selling pre-mined coins, or they launch with the PoW algorithm and later switch over to Proof of Stake.
Where in PoW-based systems a lot of cryptocurrencies are created as rewards for miners, the PoS system generally uses transaction fees as a reward.
User Participation
Users who participate in the forging process are needed to lock a fixed amount of coins into the network as their stake. The size of the stake is what determines the chances for a node to be chosen as the next validator to forge another block, which means the bigger is the stake, the bigger are the chances.
In the Randomised Block Selection approach, the validators are chosen by searching for the nodes with a combination of the less hash value and the highest stake. Since the size of the stakes is public, the next forger can generally be predicted by the other nodes in the network.
In case node wishes to stop being a forger, then its stake along with the earned block rewards will be released after a particular period, giving the network time for verifying that there are no fraudulent blocks included to the blockchain by the node.
What’s the Security in This Mechanism?
The stake works as a financial influencer for the forger node for not validating or creating fraudulent transactions. If the network finds out any fraudulent transaction, then the forger node will lose a part of its stake as well as its right to participate as a forger in the future.
Thus, as long as the stake is higher than the reward, the validator would lose more digital coins than it would gain in case of trying to do fraud.
For effectively controlling the network as well as approving the fraudulent transaction, a node would need to own a majority stake in the network. Based on the value of the cryptocurrency, this would be quite impractical as for gaining control of the network you would require to acquire 51% of the circulating supply.
Energy efficiency and security are the main advantages of the Proof of Stake consensus algorithm.
A greater number of users are highly encouraged to run the nodes since it is affordable and easy. This makes the network more decentralized, as mining pools are no longer required to mine the blocks. Since there is less of a requirement to release many new coins for a reward, this is what helps the price of a certain coin stay more stable for a longer period of time.
Taking Proof of Stake Mechanism a Step Ahead
This new wave in digital era has taken the world by storm that new innovations keep knocking the doors every now and then. Where companies are moving from Proof of Work to Proof of Stake mechanism, there are a few that have gone beyond the Proof of Stake, Secure Proof of Stake (SPoS).
Secure Proof of Stake (SPoS) is an improved variation of the popular Proof of Stake mechanism that assures long term security with distributed fairness while warding off the need for energy-intensive Proof of Work consensus algorithm.
There are several companies using and adopting SPoS mechanism including Algorand, Elrond and Zilliqa along with giants like Ethereum who are also using the same. Beniamin Mincu, CEO of Elrond told that they have introduced a different version of this mechanism with enhanced improvements meant to reduce the latency which allows each node in the shard to determine block proposers as well as validators at the beginning of a round. This is achievable since the last block’s aggregated signature is used as a randomized factor. Its Secure Proof of Stake mechanism differentiates itself through various aspects: it proposes an improvement reducing the latency, refines its mechanism by adding an additional weight factor known as rating, uses Bellare and Neven multisig scheme eliminating one communication sphere in the signing algorithm, etc.
It is also said that it is just a tip of the iceberg! There are several problems that can be tackled when you adopt SPoS mechanisms which might include centralization, attack vectors, scalability issues, energy intensity, cost for boot-strapping, etc, it just about the matter of execution that how the organisation is doing it.
Secure Proof of Stake in Blockchain, Explained was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
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