A consensus for financial interests, overview of the Proof-Of-Stake system

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more it will be able to forge blocks and obtain rewards. In short, a proof of stake algorithm implies that different network users deposit part of their holdings in a wallet to become minters (since the inception of POS solutions, many third-party providers have launched staking pools, allowing investors to stake their holdings more efficiently). The algorithm is then based on the head of the blockchain (the last block in the chain) to randomly select a minter and offer it the right to create the next block.If the latter does not create the block within a given time interval, the algorithm will automatically select a second validator in its place.There are different selection methods used by different blockchain networks but the two most commonly used methods are:<ul><li>Randomized Block Selection: In this method, the validators are selected by looking for nodes with a combination of the lowest hash value and highest stakes.</li><li>Coin Age Selection: This method selects the validator based on how long their coins have been staked for. Coin age is calculated by multiplying the number of days the coins have been held as stake by the number of coins that are staked. Once a validator has forged a block, their coin age is reset to zero and they must wait a certain period of time to be able to forge another block this prevents large stake validators from dominating the blockchain and thus leading to centralization of the network.</li></ul>Advantages & Drawbacks++ Cost-effective and eco-friendly with reduced energy consumption compared to PoW. In the long term, Proof of Stake projects therefore have more sustainable growth and are generally more scalable than POW-based projects. However, it is important to note que le coût énergétique associé à la participation au POS dépend grandement de la méthode utilisée. Even if, by nature, staking is often done directly on a personal wallet with a computer or equipment connected all the time, today, service providers called “Staking Pools” offer to centralize the assets of investors in order to obtain more rewards. This development makes it possible to limit the personal electrical consumption of each user despite an increased risk in the centralization of the network.++ Increased Speed. The block production rapidly occurs using fast-finality consensus design. As a result, POS networks are usually more performing in terms of on-chain transactions per second (TPS) and the actual settlement of network transfers.<

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p id="f2de">++ Security against fraudulent behaviours. If the network detects a fraudulent transaction, the forger node will lose a part or the entirety of its stake and its right to participate as a validator in the future. So as long as the stake is higher than the reward, the validator would lose more coins than it would gain in case of attempting fraud. Ultimately, the POS system partially protects the networks on which it is implemented, but nevertheless, without guaranteeing optimal security and without flaws.— Increased risks of network centralization. Indeed, POS system is based upon the staking that corresponds to financial holdings, which means large coin holders often have better ROI than small holders. Similarly, the snowballing ROI of some large coin holders threatens the network’s decentralized validation process. The case of 51% attacks as we previously stated in the last article can also be applied to POS system. With PoS, the attacker needs to obtain 51% of the cryptocurrency to carry out a 51% attack. But unlike PoW, attacker in a PoS system is highly discouraged from launching 51% attack because he would have to risk losing his entire stake amount to realize it.— The nothing at Stake problem. This problem occurs when a POS-based coin is forking (a fork is , by definition , when a blockchain is splitting in two distinct chains), during the fork existing validator stakes would be duplicated onto both chains meaning they could potentially claim twice the amount of rewards. In the event of fork of a Proof of Stake Blockchain, a validator has more interest in continuing to forge on the two chains rather than choosing only one, because this allows him to multiply his potential gains. This is not the case in PoW, where the miner, on the contrary, has an interest in concentrating his efforts and his computing power on the chain where he is most likely to mine a block. To overcome this problem, penalty mechanisms, commonly called Slashing are provided in order to dissuade the behaviour of “Nothing at Stake” and to push minters to vote only on one chain.Despite the various drawbacks inherent in POS systems, this consensus tends to become the first choice of investors and emerging new projects in order to develop passive income through the creation of regular interests. In the same way, with the experience of using this type of consensus, many teams have undertaken the development and improvement of POS via new variants offering entirely new possibilities.</article></body>

A consensus for financial interests, overview of the Proof-Of-Stake system

Proof of Stake, namely POS, was first introduced in a whitepaper written by Sunny King and Scott Nadal in 2012 with the primary goal to solve the problem of Bitcoin mining’s high energy consumption. With this vision, rather than relying on the energy-dependent work of miners to add blocks, Sunny and Scott suggested an alternative method called “staking” where a deterministic algorithm would choose nodes based on the number of coins an individual had. In other words, stakers would have more chances of being selected to add a block to the chain and earn the reward if they “staked” more coins in their wallet. Following the paper release, POS was first implemented by Sunny King in the project Peercoin (PPC) in 2013, making it the first coin to officially add this solution in its network.

Today, Proof of Stake is one of the most common blockchain consensus mechanisms with Proof of Work. The POS system is positioned as an alternative to the proof of work to avoid energy overconsumption and the environmental problems associated with it, but also the risk of a progressive centralization of the network. In that way, Proof of Stake does not require any form of mining equipment and is based on an entirely different mechanism, where the main actors are called “minters” and not miners. However, although POS has been implemented to solve the faults of POW systems, namely the energy consumption linked to mining, this new system still has some significant flaws which have led to many variants being developed during the last years.

How does it work?

To participate in securing the network of a PoS blockchain, it suffices to have accumulated a sufficient quantity of cryptocurrency tokens exchanged on the network. The number of tokens required varies from network to network and from customized specifications. The more a person has tokens from a cryptocurrency, the more it will be considered that network security is an important issue for them. This is the reason why we speak of “proof of stake”: when a participant is able to prove that the security of the blockchain represents a real stake for him, this one will have more chances to be selected to produce blocks and obtain a reward. Thus, the more a node has a significant amount of network cryptocurrency, the more it will be able to forge blocks and obtain rewards. In short, a proof of stake algorithm implies that different network users deposit part of their holdings in a wallet to become minters (since the inception of POS solutions, many third-party providers have launched staking pools, allowing investors to stake their holdings more efficiently). The algorithm is then based on the head of the blockchain (the last block in the chain) to randomly select a minter and offer it the right to create the next block.If the latter does not create the block within a given time interval, the algorithm will automatically select a second validator in its place.

There are different selection methods used by different blockchain networks but the two most commonly used methods are:

Randomized Block Selection: In this method, the validators are selected by looking for nodes with a combination of the lowest hash value and highest stakes.

Coin Age Selection: This method selects the validator based on how long their coins have been staked for. Coin age is calculated by multiplying the number of days the coins have been held as stake by the number of coins that are staked. Once a validator has forged a block, their coin age is reset to zero and they must wait a certain period of time to be able to forge another block this prevents large stake validators from dominating the blockchain and thus leading to centralization of the network.

Advantages & Drawbacks

++ Cost-effective and eco-friendly with reduced energy consumption compared to PoW. In the long term, Proof of Stake projects therefore have more sustainable growth and are generally more scalable than POW-based projects. However, it is important to note que le coût énergétique associé à la participation au POS dépend grandement de la méthode utilisée. Even if, by nature, staking is often done directly on a personal wallet with a computer or equipment connected all the time, today, service providers called “Staking Pools” offer to centralize the assets of investors in order to obtain more rewards. This development makes it possible to limit the personal electrical consumption of each user despite an increased risk in the centralization of the network.

++ Increased Speed. The block production rapidly occurs using fast-finality consensus design. As a result, POS networks are usually more performing in terms of on-chain transactions per second (TPS) and the actual settlement of network transfers.

++ Security against fraudulent behaviours. If the network detects a fraudulent transaction, the forger node will lose a part or the entirety of its stake and its right to participate as a validator in the future. So as long as the stake is higher than the reward, the validator would lose more coins than it would gain in case of attempting fraud. Ultimately, the POS system partially protects the networks on which it is implemented, but nevertheless, without guaranteeing optimal security and without flaws.

— Increased risks of network centralization. Indeed, POS system is based upon the staking that corresponds to financial holdings, which means large coin holders often have better ROI than small holders. Similarly, the snowballing ROI of some large coin holders threatens the network’s decentralized validation process. The case of 51% attacks as we previously stated in the last article can also be applied to POS system. With PoS, the attacker needs to obtain 51% of the cryptocurrency to carry out a 51% attack. But unlike PoW, attacker in a PoS system is highly discouraged from launching 51% attack because he would have to risk losing his entire stake amount to realize it.

— The nothing at Stake problem. This problem occurs when a POS-based coin is forking (a fork is , by definition , when a blockchain is splitting in two distinct chains), during the fork existing validator stakes would be duplicated onto both chains meaning they could potentially claim twice the amount of rewards. In the event of fork of a Proof of Stake Blockchain, a validator has more interest in continuing to forge on the two chains rather than choosing only one, because this allows him to multiply his potential gains. This is not the case in PoW, where the miner, on the contrary, has an interest in concentrating his efforts and his computing power on the chain where he is most likely to mine a block. To overcome this problem, penalty mechanisms, commonly called Slashing are provided in order to dissuade the behaviour of “Nothing at Stake” and to push minters to vote only on one chain.

Despite the various drawbacks inherent in POS systems, this consensus tends to become the first choice of investors and emerging new projects in order to develop passive income through the creation of regular interests. In the same way, with the experience of using this type of consensus, many teams have undertaken the development and improvement of POS via new variants offering entirely new possibilities.