Proof of Stake for dummies
A brief and simple explanation of the Proof of Stake mechanism.
Proof of Stake (PoS) is an alternative to the already popular Proof of Work (PoW) used by a majority of cryptocurrencies today. But at first, it can be a little difficult to grasp the concept behind PoS. So I’ll try to explain what it is as simple as possible.
Proof of Stake also known as PoS is simply a consensus mechanism that is used to validate and keep a distributed network secure. A consensus mechanism is simply a technique used in a decentralized or distributed network to prevent false entries and to keep the network secure.
In cryptocurrencies, this network refers to the blockchain. So PoS helps validate transactions and keep the blockchain network safe. It is used by some cryptocurrencies such as ShadowCoin and Cardano e.t.c but, it is not as popular as Proof of Work (PoW).
Basically, PoS was introduced to solve the bottlenecks presented by PoW. The Bitcoin blockchain uses proof of work as its consensus mechanism, so also does Ethereum. But in late December 2020, Ethereum introduced Ethereum 2.0, which makes use of proof of stake as its validation mechanism.
How does Proof of Stake work?
The proof of stake mechanism requires validators (miners) to stake their tokens (cryptocurrencies run by the network) in a process known as staking. That is, each validator put forth their coins as collateral for the chance to mine or “forge” a block, instead of contributing computational power, as in the case of proof of work.
In proof of stake, miners are known as validators. Each validator stakes a certain amount of coin as collateral for the chance to forge or mint a block. Minting or forging still refers to the process of verifying transactions and securing the blockchain.
The network then randomly picks validators that will be eligible to mine a block. The network uses randomization to pick validators (miners) that get to mine a block instead of a computational puzzle. For a validator to be picked, a certain amount of coins or tokens are required to be staked by that validator. Ethereum 2.0 for example requires at least 32 ETH to be staked for the chance to forge a block.
A block could be minted by one or more validators but has to be attested by a certain number of validators for it to be verified and added to the chain. Ethereum for example picks 128 validators and once at least two-thirds of that number agree that a block is secure, it is added to the blockchain.
In PoS, a validator who successfully validates a coin is awarded thesame way miners are.
Benefits of Proof of Stake
- Low Carbon Footprint.
Since PoS does not require a large amount of computational power from validators, unlike PoW where large amounts of computational power are required to mine a block, electricity consumption is reduced drastically.
The amount of energy that has been recorded to be consumed in the process of Proof of Work mining is more than the energy consumed by some small countries in the world.
Hence PoW proves to be more environmentally friendly and reduces the need for high electricity consumption.
- No need for those expensive mining gargets.
In order for miners to be able to provide the needed hash rate or computational power to successfully mine a block, they often have to buy powerful computer processors and cooling machines, which in turn would cost them a lot.
But PoS removes the need for powerful computer processors since no computational power is required to be legible to mine a block.
A very eminent threat to a decentralized network is a 51% attack where an attacker could gain control of at least 51% of the network to do harm.
PoS reduces the chances of this happening because not only would it be very expensive for an attacker to have 51% of all staked coins, these coins are also being put out as collateral. So they stand the chance of losing it if foul play is detected.
Problem with PoS
I think one of the major problems of PoS is the fact that it restricts who can actually mine a block. Since a certain amount of coins are required before you can mine, it means that you not only have to be a holder of that coin, you also need a lot of that coin. 32 ETH is quite a lot of coins (relatively speaking), hence only faithful holders of ETH will be able to mine or increase their chances of mining.
Although, with staking pools validators will be able to contribute their coin assets to increase their chances of mining.
I think that proof of stake as a mechanism will most likely prove to be better in a lot of ways than proof of work. I especially like the fact that miners that have been restricted from mining, will be able to use PoS to continue their mining undeterred by the government's regulations in some countries.
What is your take on the issue? I’d like to know what you think, do you prefer PoS or that we continue with PoW?
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BYE-BYE AND HAPPY MINING EVERYONE!!