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When it comes to choosing a Blockchain infrastructure, it’s of great importance that you evaluate the consensus model it implements. The sanctity of all data recorded on the Blockchain is maintained by the consensus algorithm. Proof of stake is one of the most commonly used algorithms in achieving distributed consensus in cryptocurrency Blockchain networks..

What is Proof of Work

Proof of Work (PoW) is the most utilized system of all. Since 2009 it has officially demonstrated its strength and security. In Proof of Work mechanism, computers in the network / miners work to solve a cryptographic puzzle repetitively consisting of the mathematical function / hash

Proof of Work vs Proof of Stake

In a proof of work Blockchain consensus model, miners/validators compete to create the next block in the chain by racing to validate transactions – usually an extremely computation intensive cryptographic puzzle. The first miner to find the solution to the puzzle wins the lottery; the reward is currently 12.5 Bitcoins for the successful miner plus all transaction fees of the transactions included in the block.

However, in proof of stake Blockchain, your chance of emerging as the creator of the next block depends on the amount of coins you hold in the respective system. Case in point, a validator with 1000 coins will be ten times as likely to be chosen that another validator with only 100 coins.

Proof of Stake Flavours

  1. Traditional PoS – In Proof of Stake Blockchain, the creator of the next block is chosen via a randomized selection based on their wealth (coins) and coin age.
  2. Delegated PoS - Delegated Proof of Stake (DPOS) is a new Blockchain consensus model introduced by BitShares. DPoS attempts to overcome shortcomings evident in traditional Proof of Work and Proof of Stake systems by implementing a technological democracy layer to offset the negative effects of centralization.
  3. Casper PoS (Ethereum future consensus algorithm) - The feature that differentiate between traditional proof-of-stake consensus systems and the Casper PoS is that network validators can be punished for acting maliciously and trying to validate malicious blocks.

Advantages of PoS

  • PoS Blockchain are more energy efficient thus environmental friendly since the amount of electricity needed to sync the Blockchain is greatly reduced.
  • PoS significantly reduce the probability of a 51% attack since the attacker would incur the most loss.  

Challenges in PoS design

  1. Monopolization. Those with significant amount of coins will always have the advantage to reap more coins in the future.
  2. 51% attack. Since all Blockchain-based systems are designed such that the network is influenced by the majority validators, a staker who attains 51% stake weight can effectively attack the system.  

The Bottom Line

Over the history of cryptocurrency, there have been multiple secure and fully functional PoS iterations – from pure PoS to Delegated PoS to Hybrid PoS-PoW. Each implementation has its own unique strengths and weaknesses. However, the adoption of PoS consensus systems reflects a philosophical move in the cryptocurrency world towards more decentralized and eco-friendly crypto-systems.

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