Proof of stake (PoS) is a type ofconsensus mechanism or protocol thatuses the amount of stake (or value) held in the system to determine consensus.In essence, a consensus protocol is what controls the laws and parametersgoverning the behavior of blockchains. Think of consensus as a ruleset that eachnetwork participant adheres to. As blockchains are not controlled by any single,central authority, a consensus protocol is used instead to allow distributednetwork participants to agree on the history of the network captured on theblockchain – to reach consensus on what has happened, and continue from a singlesource of truth.
Cardano is built on the ground-breaking PoS consensus protocolOuroboros,and the first blockchain consensus protocol to be developed throughpeer-reviewed research. At the heart of the protocol arestake pools, reliable server nodes run by astake pool operator to which ada holders can delegate their stake. Stake poolsare used to ensure that everyone can participate in the protocol, regardless oftechnical experience or availability to keep a node running. These stake poolsfocus on maintenance and hold the combined stake of various stakeholders in asingle entity.
How does proof of stake compare to proof of work protocols?
In contrast, proof of work (PoW) is a synchronous protocol that encouragesminers to compete to be the first who can solve any problems within the block. Arewards system is used to incentivize this problem-solving. However, thisapproach comes at a cost, with increased electricity usage and longer time spansto solve problems within the chain. These factors can slow the network downsignificantly and means it is costly to maintain.
Features of proof of stake
One of the key features of PoS is that as a user's value increases, theopportunity to maintain the ledger also increases. This means a higher chance toproduce new blocks that can be added to the blockchain and timestampedaccordingly. The creator of a new block is chosen based on a combination ofrandom selection and a determination of their stake, or wealth. A type of leaderelection occurs within the chain. It is worth remembering that within a proof ofstake protocol, participants accumulate the transaction fees thereby adding totheir wealth as they go. This approach encourages steady and stable growth ofthe blockchain and reduces the instances of stalled transactions that canprevent chain growth.
Primary advantages of proof of stake
Some of the primary advantages of PoS over PoW include:
- rigorous security protocols are incorporated into a PoS protocol
- reduced centralization - the risk of centralization is reduced by issuingpenalties for selfish practices within the network
- energy efficiency - energy consumption is extremely efficient as a smalleramount of electricity, as well as hardware resources, are needed to produceand run the blockchain
- cost efficiencies - PoS currencies are far more cost-effective than thoseoperating on PoW protocols.
