Proof of Stake (PoS)

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Community Submission - Author: Aaron

Proof of Stake (PoS) is a consensus mechanism where block validators are selected based on the number of coins they are staking. In this case, the term staking refers to the act of validators committing funds to the system. So validators can only participate in the process of producing new blocks if they lock their coins.

The locked funds will then act as collateral, meaning that malicious validators will most likely lose their stake and be kicked out of the network. On the other hand, honest validators will be rewarded as new blocks are produced (forged). Thus, we may say that a PoS blockchain achieves distributed consensus according to the economic stake that validators commit to the network.

The PoS scheme was designed as an alternative to the Proof of Work (PoW) and, as such, presents a few advantages and disadvantages. On PoW-based blockchains, like Bitcoin, the validators (miners) can only be rewarded if they find a valid solution for a cryptographic puzzle. Such a solution is what makes them eligible to add the next block of transactions in the blockchain. 

The Bitcoin network is secure because the mining process is highly competitive and costly (requires a vast amount of computation power). However, this is also one of the limitations of the PoW model because there is a lot of wasted resources that can’t be used for anything else.

In contrast, blockchains that deploy the PoS model achieve consensus in a process that selects validators based on a combination of factors. The implementation of block selection varies, but it usually considers the staking size “coin age” (how long coins are being staked). In most cases, the block selection makes use of a randomization mechanism, meaning that validators take turns in the process of forging new blocks.

Unlike PoW, the PoS model requires very little computation power, and validators can secure the network using their individual machines rather than specialized mining hardware. As a consequence, PoS systems can provide increased levels of scalability, energy efficiency, decentralization, and security.

Along with the traditional PoS model, there are also customized variations, such as the Leased Proof of Stake (LPoS) and the Delegated Proof of Stake (DPoS) mechanisms. Other than that, we also have hybrid consensus systems, such as the Hybrid PoW/PoS, which combines features of both PoW and PoS models.

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