All you need to know about Proof of Stake mechanism

After The Merge, Ethereum moved from Proof of Work to Proof of Stake mechanism, PoS became a hot keyword than ever. So what is Proof of Stake? What are the advantages of this mechanism? Let's find out with Market247.io in this article.

What is Proof of Stake?

Proof of Stake (PoS) is a consensus algorithm on the Blockchain platform. Users will deposit (Stake) a certain amount of assets to become validators of the Blockchain. Validators will verify the transaction on the network and submit the proof to the block. If it is, they will receive a transaction fee. If they are wrong, they will have an amount of assets deposited into the system.

PoS was born as an alternative to the PoW mechanism, instead of decoding complex math problems that need to use computing power to verify transactions.

How does Proof of Stake work?

The Proof of Stake algorithm requires validators to contribute a certain amount of coins for escrow. When the confirmation takes place successfully, the reward will be divided among the contributors. Anyone who wants to participate in this staking process needs to own some coins in the system. After successful Staking, the amount of coins will be locked as collateral. The more users bet, the higher the chance of being selected. The number of stakes will determine the chances of a node being selected as a validator for the blockchain. The larger the stake, the greater the chance of being a validator and vice versa.

According to the Proof of Stake algorithm, everything is not as simple as locking coins and receiving rewards. In order to increase the chances of getting profits and getting blocks as quickly as possible, users need to compete with other stakers.

The Proof of Stake mechanism is currently widely used in many Blockchain projects, but it also has two sides:

If during the lock-up period, the project works well and proves that users keep the tokens and do not sell them will have many benefits in the future, then after the lock cycle there will be no selling pressure.
If during the lock-up period, the project does not change or shows signs of going down, there is a high probability that users will discharge all the bonus tokens along with the original amount of tokens, then the project will suffer more losses.

Advantages and disadvantages of Proof of Stake

As the algorithm of choice to replace Proof of Work, PoS also has two advantages and disadvantages.

Advantages

Energy Saving: When compared to PoW, it can be said that Proof of Stake is very energy efficient. This mechanism helps to significantly reduce the amount of electricity released into the environment, thereby saving energy.
High level of security: To take control of the network, each node must own a certain amount of stake in the network, also known as a 51% attack. Depending on the value of the coin, this is very rare because to gain control of the network an attacker needs to have 51% of the coins in circulation. Besides, once the attack fails, the attacker will lose the entire amount bet on the system.
Flexibility: If the node selected to process the next block is not available for a pre-determined period of time, the PoS mechanism selects other reserved nodes to prevent processing delays from affecting the process. system workflow.
Decentralization: More users are incentivized to run nodes. Incentivizing users along with the randomization process also makes the network more decentralized.

Disadvantages

Once a validator becomes a validator, the user will receive a reward for validating, but will have their capital reduced, or the coin's value will be depreciated. In many cases, the amount of offset will not be enough to break even.

PoS is based on the respective shares of the holder. Larger token holders will have better ROI. Scam risk: If a user chooses an unscrupulous staking platform or chooses junk coins, it's easy to lose assets.

Is the PoS consensus mechanism secure?

It can be said that, with Proof of Work, it will be very difficult to perform an attack on the system, like a 51% attack because it will require energy costs for extremely large computations, much larger than with profits. At the same time, for Proof of Stake, it is not easy to attack because if it fails, the attacker will lose all his bets.

Proof of Stake is relatively easy to use, optimal and less risky than Proof of Work. In terms of safety, PoS is not a problem because it is just a tool, and safety is about that project. If the project is good, then Staking that token will give validators additional rewards. But if the project is bad, then the tokens will be locked and the price will drop heavily.

Fraud in Proof of Stake

One question that arises when learning about Proof of Stake is what if the chosen validator intentionally cheats to attack the system by creating a fake validation block.

In case the tampering is detected, the attacker will lose the entire staked amount. This is why stakes are not refunded as soon as a validator gives up the right to participate. This helps avoid the risk of the validation block being forged.

In order to ensure that the profit obtained is much smaller than the amount of the penalty that reduces the incentive to attack the system, a minimum stake will be specified. It can be said that hitting economic penalties is a key point to increase the security of Proof of Stake, contributing to making spoofing and attacks more difficult.

The Future of Proof of Stake

After The Merge event, Ethereum switched from Proof of Work consensus mechanism to Proof of Stake, PoS has been chosen by more projects. The PoS protocol overcomes some of the problems that PoW is facing, especially power consumption. As the global demand for sustainable technology increases, PoS will become the rule for the Blockchain industry.

There are still many debates going on around PoW and PoS, but the more blockchains that integrate the PoS mechanism, the higher the scalability will be. The PoS protocol will come to its day as it goes through many stages of development, but it is undeniably the strongest candidate in the consensus protocol.

Conclusion

That is all knowledge of the Proof of Stake consensus mechanism. Market247.io believes that, through this article, you have had a lot of useful information. Don't forget to follow Market247's channels to stay up to date with the latest news from the crypto market.

FAQs

Which projects use the Proof of Stake mechanism?

There are two main consensus mechanisms used by most cryptocurrencies today. The PoW mechanism is used by Bitcoin, Ethereum 1.0 and many others. PoS uses Ethereum 2.0, Cardano, Tezos, TRON,...

Why does Ethereum want to move to Proof of Stake?

The reason Ethereum wants to switch to Proof of Stake is because POS brings many advantages and has a solution to solve the problems that the Ethereum network is facing.

Cost: To operate a validator requires a lower cost compared to miners.
Scalability: Some scalability problems on Ethereum can be solved more easily with PoS.
Security: The POS algorithm is more secure and decentralized than POW.

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All you need to know about Proof of Stake mechanism - Market247.io