What is the Proof of Stake?

Proof of Stake or PoS is a consensus protocol used in blockchain technology. Its objective is to create consensus among all parties that make up the network.

What do you need to know?

• What is Proof of Stake?
• Characteristics of Proof of Stake
• Risks of PoS

How does Proof of Stake work?

In PoS, the nodes that work are called validators. The decision on which node should validate a block is made randomly, but giving greater probability to those that meet certain criteria such as the amount of currency reserved and the time of participation in the network.

Unlike Proof of Work (PoW), which requires large amounts of energy and specialized equipment to perform its operations, PoS is much simpler and more energy-friendly. In PoW, each of the nodes performs arduous computational work to solve cryptographic challenges. 

Characteristics of Proof of Stake

Proof of Stake (PoS) is a consensus protocol used in blockchain technology that has several notable characteristics, some of which include:

• Efficient use of energy: unlike Proof of Work (PoW), PoS uses significantly less energy, as validator nodes do not have to compete to solve complex cryptographic challenges.
• Random validation: in PoS, the node that validates a block is chosen randomly, but with a higher probability for those who have a larger amount of reserved currency and participation time in the network.
• Ownership of coins: to participate in PoS, a node must own an amount of coins on the network. The more coins the node has, the more likely it is to be selected as a block validator.
• Enhanced security: PoS uses advanced cryptography and validation techniques to ensure that each transaction is secure and accurate.
• Less centralized: PoS encourages less centralization in the network, as nodes do not need a large amount of processing power to compete in block validation. This allows individual users to have greater control and participation in the network.
• Economic incentives: in PoS, validators receive rewards for their participation in the network and block validation, which incentivizes participants to act responsibly and protect the integrity of the network.
  
  

Risks of PoS

Although Proof of Stake (PoS) is a consensus protocol that has advantages in terms of energy efficiency and less centralization compared to Proof of Work (PoW), it also has certain risks that must be taken into account, including:

• Risk of concentration: in PoS, those who have a larger amount of coins are more likely to be selected as validators, which can lead to greater centralization in the hands of a small group of participants with a large amount of coins. This could lead to greater inequality in the distribution of coins and reduce the participation and inclusion of individual users.
  Although less likely in PoS than in PoW, a 51% attack is possible if a group of validators controls the majority of the coins on the network and they unite to validate blocks fraudulently. This could lead to manipulation of the network and jeopardize the security of transactions.
  
  
• Technological risk: like any other technology, PoS is not perfect and may have security flaws and errors in the code that could be exploited by malicious attackers.
  
  
• Governance risk: PoS is based on the idea that those with a larger amount of coins have more influence on the network. This can lead to governance problems if the interests of the participants are not aligned and conflicts may arise in decision-making.
  
  
• Inflation risk: this refers to the possibility that the total supply of a cryptocurrency may increase too quickly due to the rewards given to miners or validators of the protocol. In some cryptocurrency systems, these incentives are designed to gradually decrease over time, which helps prevent excessive long-term inflation.