Proof-of-Stake (PoS) is undoubtedly one of the most popular and widely adopted consensus mechanisms of its time, mostly thanks to its efficiency and high scalability. There are, however, a few ecosystems that tailored the basic concept to fit their specific environments and needs better than a basic PoS would—we’ll highlight and explain the best of them in this article.
To ensure everyone’s on the same page, let’s quickly summarize what Proof-of-Stake (PoS) is all about. In short, Proof-of-Stake (PoS) is a consensus mechanism initially intended to offer an alternative to Proof-of-Work (PoW).
PoW is not only highly energy-intensive but also inefficient when it comes to fees, and limited in scalability. Proof-of-Stake (PoS) aims to improve on these aspects by providing a similar level of security, but with lower rates, and a much higher overall bandwidth. With that said, let’s take a look aton to how different versions of PoS work in their respective ecosystems.
Nominated Proof-of-Stake (NPoS) is a consensus mechanism implemented by Polkadot (DOT) and Kusama (KSM). The key difference between basic Proof-of-Stake (PoS) and Nominated Proof-of-Stake (NPoS) is that in a NPoS system, it’s not only validators who need to put up their holdings in order to participate in the network operation. Nominators, who are essentially choosing a maximum of 16 validators based on the level of trust they have in them, are also required to stake their tokens and share the responsibility of validators. If malicious behavior is detected, both validator and nominator lose their staked tokens.
Moving on to Delegated Proof-of-Stake (DPoS), which is a consensus mechanism similar to Nominated Proof-of-Stake (NPoS), but with key deviation points. As in NPoS, validation also has two layers in DPoS. Delegators are participants who determine which one of the few dozen pre-determined validators, in other words witnesses, can create blocks and reap rewards. This process is usually voting centric, where delegators make their choice based on the stake of witnesses—the more tokens it staked, the better chances a witness has. Contrary to Nominated Proof-of-Stake (NPoS), where nominators’ tokens are also at stake, delegators don’t lose their collateral in case their elected witness turns malicious. A widely adopted ecosystem which uses Delegated Proof-of-Stake (DPoS) is EOS.
Another variation is Pure Proof-of-Stake (PPoS) implemented by Algorand (ALGO), the popular and versatile crypto ecosystem. In PPoS, the validator selection is anonymous and random, which intends to eliminate the slightest chance of arbitrage and malicious behavior. Every holder has the chance to propose and vote on validation conditions, but only proportionally to their stake. This means that the higher the stake, the higher the influence an address has. With all that considered, the system is so robustly designed that it is reportedly fully Byzantine-fault tolerant.
Last, but not least, Liquid Proof-of-Stake (LPoS) is a consensus version that essentially allows qualified validators to either create themselves, or loan their privilege to other nodes. While this might seem similar to DPoS, LPoS right holders can actually choose to carry out the validation, and are not obliged to select any other entity for the task. Also, contrary to DPoS’s fixed number of a few dozen validators, LPoS supports around 70-80,000 potential places, which makes it one of the crypto ecosystems with the highest decentralization potential. The most notable project using LPoS is Tezos (XTZ), the all-round smart contract platform.
Proof-of-Stake (PoS) is a revolutionary concept that changed the way the crypto world thought about decentralized consensus forever. The above-mentioned systems take PoS’s efficiency even further, and each brings us closer to a solution that might just become the go-to, universally accepted and utilized consensus for all cryptocurrencies.
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