Proof of Stake: A Brief Guide

Proof of Stake was conceived in 2011 as a way to save computing energy to validate transactions, thus making the transaction process more sustainable. With PoS, no mining is required to validate transactions. And since no mining is required to solve complex mathematical puzzles, the process is significantly less energy-intensive than proof of work. In the Proof of Stake method, new blocks are created through a process known as “forging”. How does it work? This process randomly selects a node to confirm that the next block is valid. PoS is based on factors such as staking age and the node’s wealth.

If a user wants to participate in the forging process, they will be required to freeze a certain amount of coins into the system. These coins represent their stake. We have said that the selection process is random. Thus, the size of the stake is crucial because it helps to determine whether a node has more chances to be selected as a validator to create the next block. It goes without saying that, if the stake is bigger, it will have more opportunities to be selected.

Two main PoS typologies

The purpose of this article is to help you understand what is staking and why it is preferable to stake. First of all, there are different types of proof-of-stake protocols. Let’s talk about the two most important:

Regular Proof of Stake (PoS)

Regular Proof of stake (PoS) was introduced in 2011 as an alternative consensus mechanism. In PoS the creator of the next block is selected in a random process, according to their wealth or age. The creators are also known as “validators”.

Delegated Proof of Stake (DPoS)

Delegated Proof of Stake (DPoS) was created in 2014 by Daniel Larimer, the founder of Bitshares, Steemit and EOS. This method is an extension to regular proof of stake and purports to solve the scaling issues commonly associated with proof of work.

DPoS helps raise transaction speed and block creation without the need to change the decentralized structure of the blockchain system. How? By creating a voting system based on the delegates’ reputation. Therefore, if a node doesn’t comply with the written rules, it will be quickly removed and replaced by another node.

Staking is exceptional, but why?

Let’s list some of PoS main advantages:

Staking is affordable

With the proof-of-stake consensus mechanism there’s no longer the need to purchase high-end computer software in order to mine the blocks. You just need to stake your wealth. Therefore, it’s a much more affordable mechanism compared to PoW.

Proof of stake is energy efficient

As PoS doesn’t require energy-consuming equipment and computing energy to validate blocks, it is more sustainable than PoW methods.

No more scaling issues

No expensive mining equipment means one thing: a larger number of people can run nodes. This thing, together with the random voting process, makes the network more decentralised and helps speed up transactions with little to no energy consumption.

Staking rewards

The proof-of-stake system can provide a steady and predictable source of income. How can it? Everytime a node stakes currencies held in a wallet, it earns a fixed percentage of transactions, no matter how much processing power it was needed. This process can somewhat be compared to the production of interests on a bond.

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