Proof of stake
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 cap” is Cardano.
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. 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.
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. This incentivizes consuming huge quantities of energy. PoS is tremendously more energy-efficient.
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".
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. This can be mitigated through penalizing validators who validate conflicting chains or by structuring the rewards so that there is no economic incentive to create conflicts.
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.
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.
The first functioning implementation of a proof-of-stake cryptocurrency was Peercoin, introduced in 2012. Other cryptocurrencies, such as Blackcoin, Nxt, Cardano, and Algorand followed. However, as of 2017[update], PoS cryptocurrencies were still not as widely used as proof-of-work cryptocurrencies. The biggest proof-of-stake blockchains by “market cap” in 2021 were Cardano, Polkadot and Solana. Other prominent PoS platforms include Avalanche, Tron, EOS, Algorand, and Tezos.
There have been repeated proposals for Ethereum to switch from a PoW to PoS mechanism. In April 2021, the Ethereum Foundation announced that it planned to switch to a PoS system by the end of 2021. 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."
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