Blockchain Concepts : What Is Proof Of Stake & How Does It Work?

Blockchain Concepts : What Is Proof Of Stake & How Does It Work?

By CryptoWise | CryptoWise | 11 Jun 2021


e95d86c54741778cb4510c863238c0681a1138c3945a5cd61e60999f13d30795.jpg

 

I Feel:

“When technology encourages a mechanism where users also become an inclusive part of its day to day functioning and has a very stronger stay, the world is bound to become a beautiful place to live and grow exponentially ”

One such powerful technology which is a true epitome of tech democratization called the “Proof of Stake” consensus mechanism which plays a critical role in the smooth functioning of the blockchain economy.

In order to understand the Proof-Of-Stake protocol, we need to first understand, what is consensus in the blockchain ecosystem?

Let’s Build A Consensus:

In the distributed & decentralized blockchain ecosystem like Ethereum, any transaction which goes through between sender and receiver has to be validated by miners, to be safe and secure then only it can get approval to be a part of the Blockchain. There has to be a kind of agreement between all the participating nodes in the network to ensure the state of the said transaction is finalized and can become a part of the blockchain network.

This agreement process is known as a Consensus mechanism.

For Example:

You live in a joint family where every key decision is made democratically. You want to include a new member named Joe(A cute little puppy) but before you can allow the same to happen all family members come together to decide if this decision can be wise, safe, and affordable, especially Sofia, as she has an allergy to fur. So until all of you come to a common agreement Joe can’t become a part of your family. But if you come to a consensus Joe can live happily with your family.

Consensus mechanisms (also known as consensus protocols or consensus algorithms) allow decentralized systems to function cohesively and stay secure. This consensus mechanism uses strong cryptography to helps prevent certain kinds of spurious attacks against the transactions happening in the blockchain network and helps the network to be secure.

Theoretically, an attacker can compromise consensus by controlling 51% of the network. Consensus mechanisms are designed to make this “51% attack” unfeasible. Different mechanisms are engineered to solve this security problem differently.

TYPES OF CONSENSUS MECHANISMS:

 

There are two types of consensus algorithms employed by blockchain platforms to secure and validate the transaction

  • P.O.W: Proof-Of-Work
  • P.O.S: Proof- Of-Stake

The current Ethereum 1.0 blockchain platform is running on POW and is making technological changes to migrate to P.O.S. Similarly, Bitcoin underlying tech uses the Proof-Of-Work mechanism to validate transactions.

But most modern age blockchain platform like Polygon(Matic network), Cardano, Ethereum 2.0(under development), PolkaDot, Elrond, Algorand all uses the more secure and energy-efficient Proof-Of-Stake consensus mechanism

 

What Is Proof-Of-Work?

In the blockchain ecosystem, there is an important stakeholder named “Miners”. These miners are the ones who compete in the blockchain network to validate and create any new block which eventually becomes a part of the Block-Chain. Only one miner succeeds and wins a reward to mine the block, this mined block is then broadcasted among the network and the new state of the network is maintained.

Proof-Of-Work is nothing but a complex math’s puzzle which has to be solved fast by all the competitor miners, whoever manages to be the first one to solve this puzzle is rewarded and the transaction block become an integral part of the blockchain network holding the information which will now stay forever unchanged.

We will not go into any more details any further as it is out of scope for this piece of the article but we will revisit it later for sure.

So it’s time to understand Proof-Of-Stake in details and learn why it came to birth

Proof-Of-Stake: What & Why?

 

Proof-Of-Work has certain limitations and has been struggling to scale with time to support the ever-growing demand for energy required to validate transactions.

Why P.O.S?

 

The major cause of P.O.S becoming a de-facto is the security requirements of the blockchain, The blockchain network is kept secure by the fact that you’d need 51% of the network’s computing power to defraud the chain. This would require burgeoning investments in equipment and energy, as a miner you’re likely to spend more than you’d gain. This problem of scalability has led to the birth of Proof-Of-Stake consensus algo.

Proof-Of-Stake is slotted to be very energy efficient and also boasts of less GAS fee per transaction, which is a major concern in the P.O.W mechanism

What Is Proof-Of-Stake?

Ethereum with planned Version 2.0, has understood the advantages of P.O.S and is working aggressively to upgrade its current blockchain system and one major change which is being planned to roll out in the coming few months is the adoption of the Proof-Of-Stake consensus mechanism.

So what is proof-of-stake?

Proof of stake is a type of consensus mechanism used by blockchain networks to achieve distributed consensus through staking. Here the validators, now need to be in the possession of the native token of the concerned blockchain (for example ETH in the case of Ethereum), which they are required to stake to validate any transaction and build a consensus among all the nodes in the network

Validators play the similar role that miners in proof-of-work are supposed to perform: ordering transactions and creating new blocks so that all nodes can agree on the state of the network.

PROOF-OF-STAKE, STAKING, AND VALIDATORS:

In order to be a validator, you need to behave enough skin (stake) in the game and have to abide by the minimum staking threshold requirement defined by the particular blockchain system.

For example in Ethreum 2.0 users will need to stake 32 ETH to become a validator. Validators are chosen at random to create blocks and are responsible for checking and confirming blocks they don’t create.

Proof-Of-Stake also filters out the good from the evil validators and has an awesome mechanism to way to incentivize good validator behavior. For example, a user can lose a portion of their stake for things like going offline (failing to validate) or their entire stake for deliberate collusion. In this way staking keeps validators disciplined to play the fair game and are rewarded for good behavior.

How Does Proof-of-Stake Work?

579cd2d0db905c4a46654efd4774895e577eb7e008eef66acbd67605ab58446d.png

One of the unique value propositions of P.O.S is that unlike P.O.W validators(miners) don’t need to use significant amounts of computational power because they’re selected at random by the blockchain network (on the basis of (Token at stake ), they are not competing anymore.

In Proof-Of-Stake validators who are lucky to be picked, are only required to create a block and not completely mine it. If they are not chosen to create a block they can act as a validator, to attest the proposed block by any other creator. This validation is known as attesting.

Attesting is like saying “this block looks good to me.”. Validators here get rewarded for proposing new blocks and for attesting to ones they’ve seen. But if you wrongly attest to malicious/faulty blocks, you will lose all your polled stake in the blockchain network

Attestation:

As discussed above, If a validator isn’t chosen to propose a new shard block, they’ll have to attest to another validator’s proposal and confirm that everything looks fine as it should be. It’s the attestation that is recorded in the beacon chain rather than the transaction itself.

At least 128 validators are required to attest to each shard block — this is known as a “committee.”

These attested transactions become a part of the blockchain after the finalization stage, where every validator in the system is supposed to agree with the required majority, and state a block at certain checkpoints.

For example in the proposed Ethereum 2.0 POS system, as long as there is a consensus between 2/3 (For the Majority )of the validators agree, the block is finalized and becomes a part of the blockchain network.

Malicious validators will lose their entire stake if they try to fiddle with transactions & try to revert this later on via a 51% attack.

How Does Proof-Of-Stake Address Security Issue?

Even though 51% attack threat still persists in P.O.S mechanics, too but here validators have a greater risk of looking at the min stake, for example, they will lose all their 32 ETH which is not a small amount, in this way this attack risk is minimized.

Advantages associated with Proof-Of-Stake:

  • Highly Energy Efficient: As energy-consuming blocks are minimized in PO.S
  • Minimum entry barrier: for validators to participate they don't need huge infrastructure investments in terms of hardware. They can do with the modern age single node of the computer/lappy to be a validator.
  • Championing Decentralization: Staking is more decentralized. It allows for increased participation, and more nodes don’t mean more % returns, like with mining in P.O.W
  • More robust & scalable

 

Cons of Proof-Of-Stake:

The only cons of the proof-of-stake blockchain system are that it is still at a very early stage and is not water tested like some of the existing P.O.S systems based on Ethereum 1.0.

Signing Of With the Message:

“ Technology like blockchain is one of that rare event which occurs for the betterment of humanity at large, so it becomes extremely important for all the stakeholders of this system to ensure that the core fabric of trust and goodness of this blockchain system remains intact ”

Also do not forget to read about Dapps by clicking the link below

DApps: Crypto Basics For All Part 1
What are DApps?medium.com

 

Note!

This article was first published on Medium, Here is the link 

https://medium.com/crypto-wisdom/proof-of-stake-crypto-basics-for-all-part-2-3ddc84afbf9a

 

How do you rate this article?


7

0

CryptoWise
CryptoWise

On a mission to educate one and all about crypto and blockchain technology


CryptoWise
CryptoWise

Get educated about blockchain and crypto projects and concepts with the simple to understand content

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.