What is Proof of Stake (PoS)?
Proof of Stake idea was suggested on the bitcointalk forum back in 2011. The first digital currency to use this method was Peercoin in 2012.
Proof of Stake is the consensus algorithm used by cryptocurrencies to validate blocks. It is a different way to validate transactions based and achieve the distributed consensus.
It is a consensus algorithm like Proof of Work. The purpose is the same as the Proof of Work however the method is completely different.
PoS is a type of consensus mechanism in which users of a cryptocurrency stake their coins/tokens, in order to have a chance at verifying transactions in a block.
In a PoS system, there are no miners, there are “forgers”. Since there are no new block rewards in PoS system, forgers only take the transaction fee.
Selection of a forger depens on a semi-random, two-part process.
The first part is the user’s stake:
As I said above, users must stake their coins/tokens in order to have a chance at being selected to validate a block.
As a result of staking, they cannot withdraw or move the funds at any time. Users who stake larger amounts generally have a greater chance to verify transactions.
The second part is randomness.
It includes a degree of chance to the selection of the forger that prevents richest users from validating all transactions.
There are two parts of randomness:
Randomized Block Selection and Coin Age Selection.
In a Randomized Block Selection model, forgers selection is made by looking at the highest stake and the lowest hash value.
In a Coin Age Selection model, staking period is the parameter. Validators are chosen based on how long their tokens staked in the system.
Moreover, there are other PoS methods for forger selection. These two are the most common ones.
PoS Coin Examples
Decred: https://decred.org/ . (Decred is a hybrid coin).
Pros and Cons
Consume less energy
PoS algorithms are energy efficient when compared with PoW.
It has no logic to try a 51% attack to a PoS system as attackers must put their assets.
In a PoW system, when you try a 51% attack, you aren’ t losing your wealth. However in a PoS system, you may lose your assets.
In theory, a weakness is that people can vote for both sides of a fork,
A few people may own the majority of stakes in the network. As a result, decentralization can be a problem.
In conclusion, there is no best consensus mechanism.
PoW and PoS both have advantages and disadvantages. The best consensus is truly depends on the project requirements.
Rather than PoW or PoS, I like Hybrid Coins as they look more safe to me. In other words, as it is a hybrid coin, it has the advantages of both PoW and PoS.