- How does PoS?
- An example of using Proof of Stake in Ethereum
- Advantages of Proof of Stake
- Disadvantages of PoS
PoS, or Proof of Stake, is a consensus mechanism where each member can validate transactions in proportion to the number of coins they own. PoS is an algorithm used in blockchain networks to validate transactions and ensure the network’s security. Unlike PoW, which uses computational power to solve mathematical problems, PoS takes into account the number of coins held by a user.
How does PoS work?
In PoS networks, each transaction is checked and validated by coin holders. Validators are chosen based on the number of coins they stake. The more coins a user has, the higher the chances that they will validate a transaction and earn a reward.
This is a kind of mining that does not waste resources. The algorithm for creating a new block is not based on mathematical calculations and does not require significant amounts of computational power. A block is validated by the user with the largest number of staked tokens.
An example of using Proof of Stake in Ethereum
In 2022, Ethereum, the most popular blockchain in terms of utility, switched to the Proof of Stake algorithm. In the Ethereum blockchain, every transaction must be validated by coin holders in order for a new block to be added to the network. Coin holders, called “validators,” must deposit a certain number of coins as a guarantee of their integrity and interest in the network’s security.
There is an explanation on the official website as to why this consensus mechanism was chosen. “Ethereum switched on its p-o-s mechanism in 2022 because it is more secure, less energy-intensive, and better for implementing new scaling solutions compared to the previous proof-of-work architecture.”
The principle of PoS in Ethereum is simple.
- A user (validator) deposits 32ETH.
- The validator installs and runs the software: an execution client, a consensus client, and a validator client. The number of new validators on the network is limited, which is why there is an activation queue.
- After the activation, validators receive new blocks from peers on the blockchain. The transactions delivered in the block are re-executed to verify that the proposed changes to Ethereum’s state are valid, and the block signature is verified.
- The user sends an attestation (a vote) in favor of that block across the network.
Unlike in PoW, the tempo in PoS Ethereum is fixed. Time is divided into slots (12 seconds) and epochs (32 slots). In each slot, one validator is randomly selected to propose a block. This validator is responsible for creating a new block and sending it to other nodes on the network. Also in each slot, a committee of validators is randomly selected to vote on the validity of the proposed block. The division into committees ensures that the network load is manageable. The committees distribute the set of validators in such a way that every active validator attests in every epoch, but not in every slot.
Currently, almost all new blockchains are built on PoS consensus algorithms or their modifications.
Advantages of PoS
- Energy efficiency. Compared to PoW, PoS requires significantly less energy and computational resources to validate transactions and is more environmentally friendly.
- Transaction speed. In Proof of Stake, transaction validation takes way less time because there is no need to solve complex mathematical problems.
- Decentralization. Proof of Stake allows users to join and leave the network freely, which promotes decentralization and system stability.
Disadvantages of Proof of Stake
- Potential centralization. In Proof of Stake, the more coins a user has, the higher the chance of validating transactions, which can result in centralized control over the network.
- Risk of an attack. If a single entity controls the majority of the network’s coins, it can receive the opportunity to manipulate the network.
These problems are currently addressed by special security algorithms with restrictions for validators.
