What Is Proof-of-Stake (PoS)?

A peer-to-peer cryptocurrency called Peercoin (PPC) is the first cryptocurrency to use PoS. An open-source cryptocurrency and payment network called NXT (NXT) and another peer-to-peer cryptocurrency called Blackcoin (BLK) also use Proof-of-Stake (PoS). Energy efficiency and security are the advantages of PoS. 

How Does PoS Work?

Every validator has some stakes in a PoS network. If they want to be selected, then they will have to lock up their deposits.

  1. If a person has a particular cryptocurrency, then he will be able to become a validator
  2. The chance of mining a new block depends upon the amount of the cryptocurrency the person has. If the person has 3% of the cryptocurrency, then he will be able to mine only 3% of a block.
  3. The right for the creation of a block will be assigned randomly in between selected validators based upon the value of their stakes
  4. Either a part or the whole of the transaction fee will be rewarded to the chosen validator.

The main purpose of creating Proof-of-Stake (PoS) was to tackle inherent issues in PoW.

  1. Computing power is required immensely to mine cryptocurrency.
  2. Most miners sell their rewards for fiat money with the purpose to pay their electricity bill.
  3. This thing results in the falling price of a cryptocurrency. 

More issues in PoW:

  1. PoW is used By Bitcoin.
  2. The Bitcoin network can face Tragedy of the commons. A situation will occur where Little or no block rewards can reduce Bitcoin miners. 
  3. Transaction fees will be a way to earn something in this network. Users like to pay lower fees for their transactions and this can reduce the transaction fees.
  4. This network will be more vulnerable due to a few Bitcoin miners. If a miner or mining pool controls 51% of the computational power of this network, then a fraudulent block will be created. 

If a miner obtains 51% of a particular cryptocurrency, then a 51% attack will be carried out in a PoS network. Obtaining 51% of a reputable cryptocurrency is not only difficult, but it is expensive also. A miner with 51% of a particular cryptocurrency can show the least interest to attack a network since he has already a majority stake. A majority stake owner will try to maintain a secure network because the falling value of a cryptocurrency leads to the falling value of his holding.


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