What is Proof of Stake? Learn what PoS mining is

If the process of cryptocurrency mining It is already complex to differentiate Proof of Work and Proof of Stake can complicate things even further. Each network uses a different type of algorithm in its mining. Just as Bitcoin uses the Proof of Work (PoW)many cryptocurrencies use the so-called Proof of Stake (PoS). The name, literally translated, means Proof of Amount, but the algorithm is better known as Proof of Participation.

And in a way, this name is more appropriate to how this process works. Because if PoW mining requires work to be executed, in PoS mining it is necessary prove participation within the network. And as this is done as well as all the process specific to discover the blocks, is what we will check now. We will see the following points:

• The history of PoS;
• What is Proof of Stake;
• Advantages and disadvantages of the algorithm;
• Security;

What is Proof of Stake?

Proof of Stakeor, as we have seen, Proof of Stake, is one of the many algorithms for cryptocurrency mining. This type of protocol was first mentioned in July 11, 2011. At the time, a forum user Bitcointalktitled QuantumMechanicfirst used the term when proposing an alternative to the PoW algorithm.

At the time, the user suggested that the Bitcoin could do this change. That is, adopt mining through PoS.”I’m wondering if, as Bitcoins become more widely distributed, a transition from a proof-of-work to a proof-of-stake based system might happen.”, he said.

For QuantumMechanic, the voting system could change. Instead of the computing resourceseach vote would be weighted by number of Bitcoins that users had. To do this, they should use their private keys, proving your participation (hence the name) with the amount of Bitcoins proposed.

However, the algorithm was never even considered by developers of Bitcoin. Still, the 2011 proposal was seen as a model more efficient for cryptocurrency mining. Proof of Stake would be more efficient, wasting less energy and giving equal power of participation for network users.

How does Proof of Stake mining work?

Just like PoW mining, PoS mining works as a kind of lottery. It does not require the use of electricity and also the need to have large machines. In PoS, the process does not work through these machines, but rather through us of the network. Thus, the nodes function as validators of the blocks, because no there is the figure of the miner.

As in PoW, nodes enter a competition to decide who will mine the next block. This competition is something that varies a lot between each cryptocurrency. This is because PoS algorithms determine the criteria based on a series of variables. Here are some examples of criteria that are adopted when choosing mining blocks:

• Amount of cryptocurrencies that the user has in his/her wallet (share);
• How long the user locks these cryptocurrencies;
• How many cryptocurrencies are needed to validate a given block;
• Other factors.

Participation via amount of cryptocurrencies owned

PoS mining requires the user to be able to prove that they have a certain quantity of cryptocurrencies. To do this, he needs to send this amount of cryptocurrencies for one determined address. With this, cryptocurrencies will become locked at that address, serving as proof of the user’s participation.

Once this is done, the process begins search and validation of blocks. Unlike PoW mining, blocks here are not created, but rather validated or forged. Each network that uses PoS determines which is the minimum quantity of cryptocurrencies needed to participate in mining.

The system is similar to PoW, which also requires equipment specific for mining, according to the strength and size of the network. Although there is a minimum amount, a user can choose to leave a larger quantity of locked cryptocurrencies. The larger the amount locked, the greater the chances to find the block.

The moment a user gets forge a blockthe rest of the network performs validation to verify that the block is authentic. If it is, the user get back the cryptocurrencies blocked, along with the reward. In PoS mining, this reward is usually the transaction fees of the network, which are added to the main share.

If a user no can find the block, your cryptocurrencies are unlockedbut without the prizes. It becomes eligible to try to find the next block. However, if there is any attempt to fraud on the network, the user who is dishonest will lose all the cryptocurrencies that you left as a share.

Problems with Proof of Stake

PoS mining emerged to, in theory, put an end to PoW problems. However, it is also not exempt from criticism. One of them is the high concentration that its model provides. Since PoS requires locking up coins, critics claim that it benefits the users richer. After all, the more money, the greater the chances of discovering a block.

Another criticism was exposed by journalist Paul Vigna in the book The Truth Machine and concerns the security of the PoS protocol. According to Vigna, PoS does not require as much energy consumption and work as PoW. Therefore, it would be easier for its miners create new blocks. And this would compromise the security of networks that use the protocol.

“Without the electricity consumption costs of proof of work, attackers in a proof of stake system would simply mine multiple blocks. This would increase their chances of inserting a fraudulent document into the ledger.”, says Vigna. This problem was solved through Delegated Proof of Stake (DPoS), which also has criticism from those who are against centralized systems.

Regarding the supposed benefits to those with more money, PoS networks establish some means of try to mitigate this. These problems are also not without criticism, but they manage to make networks less concentrated. Some of the proposed solutions are:

• Choice random of blocks (Randomized Block Selection);
• Coin selection by time of existence in the user’s wallet (Coin Age Selection);
• Ticket division between users.

In ticket splitting, a group of users can come together to make a validation in a way collective. So, instead of just one person investing 200 units of a cryptocurrency, one group of 20 people can invest 10 coins each one, forming the necessary value. With this, PoS mining becomes more decentralized and accessible.

However, each cryptocurrency has its rules and forms of to effect the PoS protocol. For this, it is important to consult the white paper of the project and check these details. The document contains the following criteria to perform PoS, amount of cryptocurrencies required, allocation time, etc.

A website where you can follow information about PoS networks is Staking Rewards. It shows information such as the minimum amount for PoS mining in each cryptocurrency, mining fees fees paid, what is the percentage of cryptocurrencies that are allocated in PoS, etc. It is an excellent tool for those who are starting out and want to profit from PoS.

Proof of Stake Security

Frauds in the PoS system can also occur. One of the risks is that a validator takes control of more than 51% of the network’s cryptocurrencies. With this, he could execute the so-called majority attack (majority attack) and to defraud the blocks. In some ways, this attack is similar to 51% attack seen in PoW.

However, PoS mining has its mechanisms to fight fraud. If there is a fraudulent transaction, whoever tried to cheat the algorithm can lose part or all your invested capital. Another disadvantage is that the validator may lose the right to participate of the discovery of new blocks. The criteria are defined by each network.

In PoS mining, most networks set a minimum amount superior to the value of the block reward. With this, the reward for a fraud is too much lowwhile the value in risk is very bigger. Thus, the validator has less incentives to try to defraud the system.

Another security aspect is that PoS mining does not rely on mining pools. As we have seen, this makes the network more decentralized. In addition, PoS has a large efficiency in the use of electrical energy, as it eliminates the need for high-consumption machines.

Along with this, new algorithms are being developed every day. This makes the mining process also evolve in terms of efficiency and security.

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