Proof of Stake Coins
Proof of Stake Coins (PoS) has emerged as an alternative to Bitcoin’s Proof of Work protocol and is a protocol that takes into account digital asset ownership rather than a system based on computational power. The PoS protocol was presented in an article published by blockchain developers Sunny King and Scott Nadal in 2012. It focused on eliminating the high energy consumption and some other problems required for Bitcoin mining. Peercoin was the first cryptocurrency to use the Proof of Stake Coins protocol.
The Proof of Work protocol used in the Bitcoin network is a system in which miners holding most of the processing power have more say in the network. Hence these miners earn more income. Bitcoin mining requires high energy consumption. However, the Proof of Stake (PoS) Coins protocol does not distribute network power based on processing power. The generation of the next block in PoS can be carried out by operators performing several combinations at the same time. There are multiple types of the Proof of Stake Coins protocol.
In the Proof of Stake Coins protocol, users who want to be able to verify transactions and get a share of revenue must lock their cryptocurrency assets to be used for verification. In this locking process, which is called “staking” (getting a share from the income), the amount requested to be used for this transaction in the wallet cannot be withdrawn from the wallet until the lock is removed and is marked as the user’s share on the network.
On blockchains, users using the Proof of Stake (PoS) Coins protocol share block verification rewards and transfer fees (miner fees) paid by other users in proportion to their shares. This transaction can be compared to owning the shares of a public company. Users who allocate more cryptocurrency resources for “staking” get a higher share of revenue, as people with more shares get a higher share of the profits distributed by the company.
With version 2.0 of the Ethereum project, it is planned to be the largest cryptocurrency project using Proof of Stake.
Properties of the Proof of Stake Coins Protocol
The biggest feature of Proof of Stake (PoS) Coins is that it emphasizes capital power rather than computing power. Therefore, it is necessary to have an asset to be stacked rather than start trading by running an equipment. In the PoS protocol, the user who holds more cryptocurrencies can also increase her/his power in the network.
Users with more assets in their wallet are more likely to be authenticators. The concept of “staking” also comes from here. The PoS protocol is based on the fact that wallet holders earn earnings by confirming transactions. The user with more assets gets a higher share of revenue, but this does not work the same for all types of PoS.
To prevent the richest shareholder from monopolizing the network, the Proof of Stake coins protocol uses multiple options for block definitions. The most common types of PoS selection are random and cryptocurrency age-dependent selection.
Those who approve transactions in random selection are selected from among the weakest nodes in terms of calculation (hash) value but among the wealthiest nodes in terms of share (share) value. In the selection depending on the age of the cryptocurrency, the users who hold the asset for the longest time are selected as validators.
Proof of Stake (PoS) Coins Types
The Proof of Stake Coins protocol has evolved over time and has been offered with different options. Delegated Proof of Stake (dPoS) and Leased Proof of Stake (LPoS) are prominent PoS types.
Delegated Proof of Stake (DPoS)
Delegated Proof of Stake (dPoS) uses a social reputation system to achieve consensus on the blockchain network. DPoS, which is referred to as the least decentralized protocol compared to others, aims to have cryptocurrency holders have a say in the management of the network.
Leased Proof of Stake (LPoS)
In the Proof of Stake Coins protocol, users are selected according to some criteria and their blocks are verified. In other words, they cannot generate income from every block produced. However, the Leased Proof of Stake (LPoS) protocol allows users to lease a certain percentage of an entire node. This system works exactly like PoS, but provides an incentive for users holding small amounts of assets to participate.