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Proof of stake

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Proof of stake (PoS) protocols are a class of consensus mechanisms for blockchains that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency. Unlike a proof of work (PoW) protocol, PoS systems do not incentivize extreme amounts of energy consumption. The first functioning use of PoS for cryptocurrency was Peercoin in 2012. The biggest proof-of-stake blockchain by market capitalization is Cardano.

Description

For a blockchain transaction to be recognized, it must be appended to the blockchain. Validators carry out this appending; in most protocols, they receive a reward for doing so.[1] For the blockchain to remain secure, it must have a mechanism to prevent a malicious user or group from taking over a majority of validation. PoS accomplishes this by requiring that validators have some quantity of blockchain tokens, requiring potential attackers to acquire a large fraction of the tokens on the blockchain to mount an attack.[2]

Proof of work, another commonly used consensus mechanism, uses a validation of computational prowess to verify transactions, requiring a potential attacker to acquire a large fraction of the computational power of the validator network.[2] This incentivizes consuming huge quantities of energy. PoS is tremendously more energy-efficient.[3]

In 2021, Elon Musk and Bill Gates were seen as damaging sentiment towards proof-of-work blockchains such as Bitcoin and Ethereum by publicising their massive energy consumption. The efficiency of proof-of-stake coins such as Cardano, EOS, BitGreen and Stellar led to them being described as "green coins".[4][5][6][7]

Attacks

PoS protocols can suffer from the nothing-at-stake problem, where validator nodes validate conflicting copies of the blockchain because there is minimal cost to doing so, and a smaller chance of losing out on rewards by validating a block on the wrong chain. If this persists, it can allow double-spending.[8] This can be mitigated through penalizing validators who validate conflicting chains[8] or by structuring the rewards so that there is no economic incentive to create conflicts.[1]

Variants

Variations of stake definition

The exact definition of "stake" varies from implementation to implementation. For instance, some cryptocurrencies use the concept of "coin age", the product of the number of tokens with the amount of time that a single user has held them, rather than merely the number of tokens, to define a validator's stake.[2]

Delegated proof of stake

Delegated proof of stake (DPoS) systems separate the roles of the stake-holders and validators, by allowing stake-holders to delegate the validation role.[8]

Implementations

The first functioning implementation of a proof-of-stake cryptocurrency was Peercoin, introduced in 2012.[1] Other cryptocurrencies, such as Blackcoin, Nxt, Cardano, and Algorand followed.[1] However, as of 2017, PoS cryptocurrencies were still not as widely used as proof-of-work cryptocurrencies.[9] The biggest proof-of-stake blockchains by market capitalization in 2021 were Cardano, Polkadot and Solana. Other prominent PoS platforms include Avalanche,[10] Tron, EOS, Algorand, and Tezos.[11][12][13]

There have been repeated proposals for Ethereum to switch from a PoW to PoS mechanism.[14][15] In April 2021, the Ethereum Foundation announced that it planned to switch to a PoS system by the end of 2021.[15] However, switching to a PoS system is a substantial change, and progress has not been steady. William Entriken, an Ethereum developer, said: "You have to switch to proof of stake. Proof of work should be illegal." However, the change has "always been three months away. These things don't just happen immediately."[14]

References

  1. ^ a b c d Saleh, Fahad (2021-03-01). "Blockchain without Waste: Proof-of-Stake". The Review of Financial Studies. 34 (3): 1156–1190. doi:10.1093/rfs/hhaa075. ISSN 0893-9454.
  2. ^ a b c Tasca, Paolo; Tessone, Claudio J. (2019-02-15). "A Taxonomy of Blockchain Technologies: Principles of Identification and Classification". Ledger. 4. doi:10.5195/ledger.2019.140. ISSN 2379-5980.
  3. ^ Zhang, Rong; Chan, Wai Kin (Victor) (2020). "Evaluation of Energy Consumption in Block-Chains with Proof of Work and Proof of Stake". Journal of Physics: Conference Series. 1584 (1): 012023. Bibcode:2020JPhCS1584a2023Z. doi:10.1088/1742-6596/1584/1/012023. ISSN 1742-6596.
  4. ^ Leyes, Kevin (June 15, 2021). "Elon Musk's Tweet Radically Changed the Crypto Game". Entrepreneur.com.
  5. ^ Sorkin, Andrew Ross (March 9, 2021). "Why Bill Gates is worried about Bitcoin". The New York Times.
  6. ^ Partridge, Joanna (June 14, 2021). "Bitcoin price back above $40,000 after Elon Musk comments". The Guardian.
  7. ^ Kaplan, Ezra (May 25, 2021). "Cryptocurrency goes green: Could 'proof of stake' offer a solution to energy concerns?". NBC News.
  8. ^ a b c Xiao, Y.; Zhang, N.; Lou, W.; Hou, Y. T. (2020). "A Survey of Distributed Consensus Protocols for Blockchain Networks". IEEE Communications Surveys and Tutorials. 22 (2): 1432–1465. arXiv:1904.04098. doi:10.1109/COMST.2020.2969706. ISSN 1553-877X. S2CID 102352657.
  9. ^ Li, Wenting; Andreina, Sébastien; Bohli, Jens-Matthias; Karame, Ghassan (2017). "Securing Proof-of-Stake Blockchain Protocols". In Garcia-Alfaro, Joaquin; Navarro-Arribas, Guillermo; Hartenstein, Hannes; Herrera-Joancomartí, Jordi (eds.). Data Privacy Management, Cryptocurrencies and Blockchain Technology. Lecture Notes in Computer Science. Cham: Springer International Publishing. pp. 297–315. doi:10.1007/978-3-319-67816-0_17. ISBN 978-3-319-67816-0.
  10. ^ Gecgil, Tezcan. "7 Cryptos to Buy for Their Potentially Profitable Partnerships". www.nasdaq.com. Retrieved 2021-07-23.
  11. ^ Ashworth, Will (July 13, 2021). "Solana vs. Cardano: Which Is the Better Ethereum Killer?". Investor Place.
  12. ^ Hissong, Samantha (July 9, 2021). "The Crypto World Is Getting Greener. Is It Too Little Too Late?". Rolling Stone.
  13. ^ Nguyen, Cong T.; Hoang, Dinh Thai; Nguyen, Diep N.; Niyato, Dusit; Nguyen, Huynh Tuong; Dutkiewicz, Eryk (2019). "Proof-of-Stake Consensus Mechanisms for Future Blockchain Networks: Fundamentals, Applications and Opportunities". IEEE Access. 7: 85727–85745. doi:10.1109/ACCESS.2019.2925010.
  14. ^ a b Sparkes, Matthew (2021-03-30). "NFT developers say cryptocurrencies must tackle their carbon emissions". New Scientist. doi:10.1016/S0262-4079(21)00548-0. Retrieved 2021-04-07.
  15. ^ a b Lau, Yvonne (2021-05-27). "Ethereum founder Vitalik Buterin says long-awaited shift to 'proof-of-stake' could solve environmental woes". Forbes. Retrieved 2021-05-29.