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- 1 Proof-of-stake has emerged as a better alternative to the proof-of-work consensus algorithm.
- 2 While it consumes less energy and is more scalable, PoS has its own challenges.
When the first crypto originated, it was done using the proof-of-work consensum mechanism. Under this mechanism, the miners solved equations for creating new blocks that eventually became coins. However, the problem with PoW was that it had high computational costs. So, proof-of-stake was introduced in 2012 as an alternative consensus mechanism.
Instead of solving equations, this algorithm came with a simpler mechanism. The members of this consensus just had to stake assets and validate the transactions. While it did the job of creating new tokens, it also reduced the cost in the process. The miners became validators here and they staked tokens into smart contracts.
In exchange for staking and validating tokens, they get rewards. In case they fail to validate the transaction, the stake faces a risk of getting revoked. This particular process is called slashing. There’s much more to explore about the proof-of-stake mechanism, so let’s dive right in.
Delving Deeper into Proof-of-Stake
There’s a process behind choosing the validators. They are chosen based on the number of tokens staked. Those with a larger lot get to be the validators. The token owners offer their stakes as collateral and become a part of the ecosystem. Also, different blockchains have disparate parameters.
For example, validators on Ethereum need to have 32 tokens to begin staking. Multiple validators verify the blocks to finalize and close them. It should be noted that token holders can join the validation pools even if they don’t have 32 ETH. They just can’t become validators themselves.
Recently, different types of proof-of-stake mechanisms have been introduced. Moreover, some variations in the consensus system also change things a little. For instance, Ethereum requires 128 validators to add new shards since the induction of sharding. After the validation of shards, the blocks are created.
Two-thirds of the validators must validate and close the transactions.
Distinguishing Between PoS & PoW
It’s important to understand that nodes on the blockchain manage both PoS and PoW. Yet, their methods of approaching the networks are different. In the PoW environment, the individuals have to be active in the process. They solve cryptographic hashes to create new blocks.
This consensus requires a sizable amount of computing resources and energy to work. On the other hand, PoS works on the mechanism of depositing or staking tokens. It requires much less energy and computing power than the PoW algorithm. At the same time, it delivers faster speed and more scalability.
The new cryptocurrency users must know the advantages and challenges of PoS.
Advantages of Using PoS
The staking-based blockchain network offers some notable merits that every crypto user should consider.
Fewer Resources– As stated above, resources used by the PoS blockchain are much less than PoW. Consequently, they become more affordable for entrepreneurs. That’s the reason behind the wide adoption of Ethereum protocols like ERC20, ERC721, etc.
Lower Energy– Another reason that makes PoS a go-to option for entrepreneurs is that PoS consumes much less power compared to PoW. It does not require a piece of specific machinery loaded with graphics cards and chips. It can be easily done at a minimal cost without any need for a dedicated infrastructure.
Speed– Validating transactions through a staking-based method is much faster than adding blocks after solving equations. In addition, it requires less expertise, and therefore, more people can join this system.
Scalability– Proof-of-stake becomes more scalable because it comes with a flexible structure. It easily interacts with dApps and can be used for various DeFi services too.
Challenges PoS Faces
PoS certainly gives so many benefits, but at the same time, it faces some challenges too. As an informed user, one must know about them.
Compromised PoS– The PoS system favors large stakers over small ones. Hence, people with higher tokens have more dominance in the network. This defies the very principles of decentralization that keep power distributed equally among everyone.
Elongated Staking– Mostly, the coin holders can easily withdraw from the staking programs. Nonetheless, many people end up keeping their tokens in the system longer than they want. This happens because they have to go through staking pools and many other procedures.
Less Safer– PoS is less complicated and thus, less safe. Although blockchain has been compromised in various mechanisms, the staking system is particularly vulnerable. Some say that this is because it collects the coin which somehow makes it internally feeble. Irrespective of the reason, the fear seems to be real.
Upshot
All things considered, PoS is a consensus mechanism that makes crypto more adaptable. This particular consensus has many prospects to offer. So far, all the adapters have gained good outcomes. Furthermore, it has proven to be more startup-friendly than PoW. Of course, there are concerns to address but that is to be expected with every new technology.
Hopefully, proof-of-stake will become more viable in the near future.
Steefan George is a crypto and blockchain enthusiast, with a remarkable grasp on market and technology. Having a graduate degree in computer science and an MBA in BFSI, he is an excellent technology writer at The Coin Republic. He is passionate about getting a billion of the human population onto Web3. His principle is to write like “explaining to a 6-year old”, so that a layman can learn the potential of, and get benefitted from this revolutionary technology.
