crypto basics: How does the PoS protocol work?

By estrenoscinehoy.com | It's all about crypto | 5 Jun 2021

Hey mates!

Today we are going to talk about the Proof of Stake consensus algorithm. In my previous post I was talking about the Proof of Work consensus algorithm and why is really important in blockchains. So we are going to continue on this point.

The blockchain problems

Mainly the blockchain problems are:

the transaction speed, the latency
the high fees
the centralized nodes

PoW vs PoS

As we know the BTC blockchain has a 10 min latency in order to create a new transaction block where a group of transactions is committed. But 10 min is so much time for many use cases. Imagine, you want to buy an ice cream and you pay it with Bitcoins (satoshis in this case). So when you are going to pay it you have to wait up to 10 min until the transaction is done. So you can eat this ice cream and many more at this time... haahaha. That is because the BTC is using the PoW consensus algorithm. In this case, you will need something lighter and faster. So maybe you can pay with DASH and the transaction is instantaneous. DASH is using Proof of Stake. So one of the main problems that Proof of Stake is solving is the transaction speed. The fees are another problem that Proof of Stake is solving because doesn't need so much energy to spend on the mining process. With the PoS, you can achieve low fees. And finally, with Proof of Stake, you can achieve a system of decentralized nodes because anyone can participate from any part of the world.

How is working Proof of Stake, PoS

The scenario can be this:

there are some nodes in the system, candidates to be selected to confirm the transactions. Anybody can participate.
the nodes compete to be selected locking o staking as many cryptos as they can.
the consensus algorithm is implemented to choose a node in a random way using the probability and taking into account the number of locked coins. As many locked coins, more probability to be selected.
Once a node is selected the node creates the block and commits all the transactions included. The node earns coins for that.

Security

This is the main concern for all the blockchains. If somebody corrupts the blocks, the blockchain is going down and all is lost. To achieve this exists a 51% attack. If there are a set of nodes that has more than the 51% of probability to be selected and they are malign, they can corrupt the blocks and the blockchain is going down. The algorithm relies on the fact that the nodes are not malign nodes because they have to lock a big amount of coins, so if the blockchain goes down the nodes lose their money too. So the nodes have to watch over the security too because is their business.

Benefits

the most important are:

the energy consumption is really small, which is good for our planet. Fewer emissions, less pollution. The PoW is mainly the opposite, which is one of the key points to avoid it.
there's no need to resolve an algorithm to be selected. So the nodes need less energy, less powerful machines to work, and there are more possibilities to participate in this activity. Everyone can participate. So the network is more decentralized than the PoW is mainly the opposite: expensive machines to work (only powerful investments can afford it), more energy, and a more centralized structure. More democratized system.
the rewards are better distributed between all the nodes, it's easier to be selected than the PoW consensus algorithm. Remember that the reward is the first transaction in the block. This is a special transaction that generates a new currency owned by the creator of the block.
decentralized and democratized system. Everyone can access it and can be part of the consensus algorithm.
over the paper the security is high and the 51% attack can't be happened, as the opposite of the PoW that the 51% attack is always present to be taking into account.
better node's scalability, more transaction speed, and less time to commit the block of transactions. This system is perfect for a lot of small payments.

Cons

over the paper, the security of the PoS is fine for the 51% attack, but there are others to keep in mind too.

Conclusions

The PoS is the next step in the consensus algorithms to perform faster transactions and lower fees. This algorithm resolves the problem of pollution, the democratization of the blockchain network, and the problem of the node's centralization. The algorithm is not perfect but fits well for some blockchains as Solana, Polkadot, Cardano, and many others that are coming.