The cryptocurrency world is always evolving, with better innovations coming into the ecosystem. Consensus mechanisms are not left behind when it comes to progression. When Prof of Stake got introduced as an alternative to Proof of Work, it already had several improvements over its predecessor. The pros of the consensus mechanism include: decentralization, requires less computing power, efficiency, and token holders earn rewards.
However, there is always room for improvement in the industry. That is why enhanced variants of the PoS algorithm are coming up. This article will look into the different versions of PoS in the market and how they improve from the original algorithm.
Basic forms of Proof of Stake
We cant talk about variations of PoS without touching base with the original form of the algorithm.
Users in a standard PoS hold a specific amount of coin in the network for a chance to get chosen as validators. The more coins a person stakes, the higher their chances of becoming the next block creator on the network. Most systems also incorporate random user selection in their network to avoid monopoly by the rich.
Standard PoS works on the assumption that validators with a high financial stake in the network will be authentic when verifying transactions. A penalty mechanism is usually put in place to confiscate the stakes of validators who try to manipulate the system or verify invalid transactions. Once the proposed block is verified as valid by the majority, the validator gets incentivized through rewards.
The core idea of staking remains the same in all the PoS versions.
Different Proof of Stake Variations
Delegated Proof of Stake (DPoS)
Delegated Proof of Stake is considered more democratic than its predecessor. In the DPoS system, users get to vote on who they trust to validate transactions. Once a user stakes their coins in the system, they earn the right to vote on who produces the next block. These block producers voted in are usually referred to as delegates.
DPoS runs on digital democracy, the voting power of each user gets weighted according to the size of their stakes. Voting is a continuous process that allows the voters to replace the delegates if they aren't performing well. The users with the highest votes become delegates.
A DPoS mechanism is designed to rely on a fixed number of delegates to progress the network.
A delegate is responsible for validating transactions, grouping them into blocks, and broadcasting them into the network. In turn, they get rewarded for their participation. If delegates lose the trust of other stakeholders, they will run the risk of being replaced by someone more trustworthy.
Leased Proof of Stake
In this spin of PoS, users get to support full nodes that want to secure the network through leasing their coins. Leased PoS follows the same set of rules as PoS; however, users can lease their coin to other stakeholders on the network. The more coins under a specific node, the higher their chance of being chosen to validate transactions. Therefore, a node with a significant amount of nodes leased under it has higher chances of selection.
This system benefits small coin holders and those who have no interest in validating transactions. It also encourages more staking in the system, thus securing the network better. A leaser maintains full control of their assets as coins don't change ownership and are free to break the lease anytime.
Once the node is chosen as a validator and gets rewarded, they share the reward with the leasers according to the percentage leased.
Hybrid Proof of Stake (HPoS)
Hybrid PoS is a mix between the Proof of Work and Proof of Stake mechanisms. This variation aims to capture the best parts of each approach and use them to balance out their weaknesses. HPoS secures the network using PoW to produce new blocks and PoS to validate transactions. Many cryptocurrencies using this mechanism started with a PoW system then later integrated PoS to aid validating.
This hybrid emerges as a solution to the high power consumption of PoW during validation, replacing it with the efficiency of PoS. Furthermore, it provides a deterrent to system manipulation by making the 51% attack expensive.
Trustless Proof of Stake (TPoS)
TPoS is a network offered by Stakenet that combines PoS and cold storage security. It solves the problem of PoS systems requiring stakers to hold their coins online, which is a security risk. In this variation, a user can validate transactions and secure the network while keeping their staked coins in a cold wallet (offline).
Unlike DPoS, there is no cap in the number of validators in the network. It's unique that stakers can hire another node to do the staking for them while maintaining the full authority of their assets. The hired node (merchant node) then takes care of the technical aspects of staking for the user but can't access their funds.
All Proof of Stake variations attempts to improve the standard PoS is to enhance the user experience. All these mechanisms are experimenting with different ways to maximize efficiency and increase decentralization. The invention of more consensus mechanisms will ultimately balance out the disadvantages of the current ones. The basis of all these PoS mechanisms will always remain to stake. As a simple enough concept, you can start your staking journey today with MyCointainer. The platform is easy to use and requires no technical know-how; it does all the work for you. So why not start earning your rewards today?