In the previous article, you learnt what the consensus of Proof of Work was, but you also understood that the blockchain is governed by several other consensuses, among which we find the consensus of issue evidence. Take a seat and enjoy your reading!
PoS (Proof-of-Stake) meaning proof of stake in French, is a similar method to proof of work, allowing the blocks to be validated and written in a different blockchain from the one specific to Bitcoin. The functioning of the PoS consensus makes it possible to achieve considerable savings in energy resources. Indeed, the amount of energy spent to validate a block is greatly reduced because competition does not result from the power offered by miners, who often make disproportionate investments that become less profitable over time.
To use the Proof-of-Stake, the user must deposit a certain amount of cryptocurrencies to have the right to participate in the creation and validation of new blocks. By participating in the creation and validation of a block, the block will be rewarded with a transaction fee contained in a block as a reward.
To participate in a Proof-of-Stake, you must store the cryptocurrencies in which you have invested in the official portfolio of the cryptocurrency. The consensus will then function in a random way and will designate the minor who will have the right to create the block and then finally integrate it into the blockchain in order to receive the reward. The algorithm works as follows: the more tokens you have, the faster you will have the chance to be selected to validate the block. For example, if you have 2000 tokens, you are twice as likely to be selected as someone with 1000 tokens. In addition, the ability to “mine” cryptos is inherent in the amount we have in our possession, which means that you will only be able to mine 5% of the total supply if you have 5% of the tokens released on the market.
Here are some other variants of the PoS, we will study them in more depth in the next articles because each of these methods has advantages and disadvantages, which means that neither method is better than the other because they have their own utility.
- Proof-of-Hold (PoH): the more a user keeps his tokens over time, the more likely he will be to validate a block.
- Proof-of-Importance (PoI): or proof of importance: A score is assigned to a person based on the volume of transactions they will perform. The larger the volume, the higher the score, so you will have a chance to validate a block.
- Proof-of-Use (PoU): the more users exchange currency, the more likely they are to validate a block.
What are the advantages of PoS?
They are of several kinds:
- Reduced energy consumption compared to PoW
- Less investment in equipment, which means that IT components that are less and less profitable do not have to be written off each time the reward is changed.
- Less variation in the price of cryptos because the resale of gains made through PoW encourages miners to resell their cryptocurrencies once they have been rewarded, while PoS is asking to keep its cryptos as much as possible
- No inflation, tokens are pre-mined from the beginning of the project so there is no issue each time a block is validated
- Reduction of the risk of centralization because the advantage of this type of mining is that you can never own 50% of the tokens emitted.
- It is much more expensive to perform a 51% attack in PoS than in PoW. In addition, people wishing to do so are easily detectable and penalties are a strong deterrent
What are the disadvantages of PoS?
- A lower level of safety than for PoW
- The ability to create a “Nothing at Stake” attack. As it costs nothing (except tokens), it is possible to create many branches in the hope of validating some of them and receive rewards. This is not cost-effective for PoW because it would divide the computing power
- Exchanges that have a lot of tokens can use them to earn even more
- The rewards offered are much lower than those from proof of work (PoW)
That is the end of the article, I hope you will have better understood, what is the proof of stakes, assimilated its functioning and the reasons why each consensus is preferred according to the needs identified by the actors in relation to cryptocurrencies.
Feel free to post your questions in comments or share your experience. Until then, I look forward to see you in the next article!
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