Learn about PoS variants in one article
Everyone is already familiar with Proof of Stake (PoS). In this article, we will take a look at the variants of PoS.
Part 1 — Proof-of-Stake
For those unfamiliar with Proof of Stake (PoS), let’s start with a quick overview.
PoS is often compared to Proof of Work (PoW), which incentivizes network validators based on the number of tokens they own.
PoS was first proposed by Sunny King in 2012. The mechanism selects stakeholders to validate transactions. In PoS, the creator of the next block is selected through a lottery process. Creating new blocks and adding them to the network will be rewarded with digital assets. In PoS, the number of staked tokens determines the security of the network, while in PoW, the network is protected by computing power. We are very bullish on the future of Proof-of-Stake (PoS) cryptocurrencies as we believe it has the following advantages:
1. Less consumption compared to PoW: We run several staking nodes on various PoS protocols, and only need a few secure VPSs to do this, while PoW miners need much more mining equipment .
2. Token holders can earn rewards/interest based on inflation rate; this helps build community and incentivizes people to hold tokens.
3. Decentralization: According to the type of PoS adopted by the protocol, the network may achieve complete decentralization, which is the original intention of creating cryptocurrency.
Next, you'll be introduced to the various PoS variants, detailing how they work, and then giving you a simple summary table. To simplify, validators refer to nodes that secure and validate transactions on the network in order to earn token rewards. Depending on the protocol, they can also be called block producers, witnesses, or bakers.
Part II - Different PoS Differences
Delegated Proof-of-Stake (DPoS)
DPoS typically works through an election system where a fixed number of validators are authorized to secure the network. As a token holder, you can vote on who will validate transactions on the network, with voting power based on your staked share. Validators with the most votes can become delegators, validate transactions and earn rewards.
DPoS has been implemented on protocols such as Lisk, Tron, Steem, Bitshares and even EOS, a scalable blockchain Dapp platform created by Daniel Larimer and famous for his record-setting $4 billion ICO. Depending on the protocol, DPoS may require validators to have significant computing power.
Delegated Proof of Contribution Protocol(DPoC)
Some may be familiar with the ICON network, a PoS blockchain that introduces a new protocol that rewards nodes and delegators directly with cryptocurrency, known as Delegated Proof of Contribution. In many ways it is similar to DPoS, but the incentives are set up in such a way that community members are genuinely interested in contributing to the development of the protocol
In DPoC, delegation (called voting) is optional and non-custodial. Additionally, tokens can be staked without voting for node operators.
DPoC is a decentralized democratic governance protocol in which token holders exercise their governance rights by delegating token pledges to those who directly contribute to the network: public representatives (P-rep) . A total of 22 primary P-Reps are elected, with no limit to the number of secondary P-Reps who are also incentivized to contribute. Additionally, rewards are offered to other types of ecosystem participants and Dapp builders.
In the event of significant outages, the P-rep and its constituents risk a reduced penalty, currently a 6% fine.
DPoC is still rapidly evolving and improving. Stakin participated in the development of the next iteration of the protocol as a P-Rep, and supports IISS3.0, which can bring DPoC closer to LPoS (bond compliance), while decentralizing incentives for participant builders!
Liquid Proof-of-Stake (LPoS)
In LPoS, delegation is optional. Token holders can delegate validation rights to other token holders without having to escrow the tokens, meaning the tokens remain in the token holder's wallet. Additionally, only validators are penalized for security failures (e.g. double endorsement). LPoS also has voting rights. As a token holder, if you are your own node, you can vote directly in protocol amendments.
LPoS was originally introduced by Tezos. Tezos, an on-chain governance protocol created by Kathleen and Arthur Breitman, has been running smoothly on mainnet since September 2018. LPoS on Tezos has proven to be very successful, with a current stake ratio of around 80%, spread across 450 validators and over 10,000 delegators. Technically speaking, the number of consignors is limited by the minimum bond size requirement, which may be as high as 100,000 at present, with a high degree of decentralization.
Bonded Proof-of-Stake (BPoS)
BPoS is very similar to LPoS: delegation is optional, non-custodial, and token holders benefit from voting rights on protocol amendments. Still, it’s called BPoS for a reason: in the event of a security or downtime, a portion of the stake of validators and delegators is slashed. In LPoS, only validators risk being slashed, while delegators only risk missing out on some rewards. In this way, dishonest or inefficient validators are prevented.
The advantage of this BPoS mechanism is that it can provide validators on some LPoS protocols with a clear solution to the problem of pledge ratio (similar to capital requirements) that they need to try to maintain to prevent over-delegation. Being in the sample also means that the authorizer needs to conduct additional due diligence before authorization, and keep an eye on the situation of the verifier.
BPoS was first introduced by projects like Cosmos and IRISnet (based on Cosmos SDK/Tendermint). Both are very interesting cross-chain protocols🚀. In BPoS protocols such as Cosmos and IRISnet, the number of validators is limited, and valid validators are determined according to their total pledge amount (own pledge + delegation).
Nominated Proof-of-Stake
The Polkadot ecosystem has introduced the Nominated Proof of Stake (NPoS) mechanism. Many Substrate-based chains are now in use, such as Polkadot, Kusama, and Edgeware. In this system, validators are automatically selected several times a day. These validators are expensive to run, such as ensuring high communication responsiveness, building a long-term reputation for reliability, and staking tokens. This is done to maintain good behavior and their benefits are cut when they deviate from the agreement. Also, as we can see from the recent Edgeware validator failure, slashing can be performed very quickly on NPoS.
In NPoS, delegators are called nominators. Nominators nominate validators on a shortlist and lock a certain amount of tokens to back them. In NPoS, the number of validators is limited by governance, and these validators are selected based on their total stake in the network. Unlike validators, nominators can have an infinite number of participants. Nominators are incentivized to continually search for credible new candidates. With these two roles, NPoS allows all token holders to continuously participate in the network. Therefore, it maintains a high level of security while maintaining a limited number of validators.
Hybrid Proof-of-Stake (HPoS)
Hybrid PoS/PoW is often referred to as a hybrid between Proof of Work and Proof of Stake. It uses two methods together to secure the network: PoS works with the PoW system to further secure the blockchain. Typically, in this method, miners generate new blocks via PoW, and then PoS validators vote on the validity of these blocks. HPoS avoids more attacks through the power of hashing.
Among HPoS projects, we can see Decred and Hcash. Ethereum is also upgrading Casper to HPoS. In Decred, token holders have the ability to inspect blocks mined by miners and vote on changes to the consensus rules.
Pure Proof-of-Stake
Another consensus algorithm introduced by Algorand is PPoS, which is a protocol with open participation, scalability, security, and transaction finality. In this algorithm, the network ties its security to the honesty of the majority.
What makes this algorithm different is that, unlike the aforementioned DPoS, LPoS, or BPoS, there are no sanction mechanisms for entities misbehaving. The network would rather make it impossible for the few to cheat, and allow the majority to cheat, than cut it. The protocol is developed in such a way that it will continue to work fine as long as a 75% majority of the network is honest.
Leased Proof-of-Stake
Leased Proof-of-Stake (LPoS) is a direct variant of PoS. When using this consensus protocol, the leader can participate in generating new blocks. Because the larger the amount leased within a network node, the higher the chance it will be chosen to create the next block.
LPoS works as follows: To be able to start a lease, a token holder needs to create a lease transaction, specifying the address and the amount of tokens to be leased. The Waves platform uses the LPoS network.
Other projects that can be classified as PoS
The goal of this article is to give you a comprehensive overview of the various PoS protocols at their core. With PoS gaining traction across the blockchain industry, we would like to mention a few other projects that also offer staking:
Tomochain: Proof-of-Stake Voting (PoSV) Proof-of-Stake Voting
Dash: Masternode Staking
Ontology: ONG "Bonus" Delegated Byzantine Fault Tolerance
Neo: GAS "Bonus" Delegated Byzantine Fault Tolerance
Summarize
We believe that with the near-infinite creativity of the developers behind the blockchain, we will see more PoS variants emerge in the future. It is now increasingly clear that PoS cannot be ignored as one of the best viable alternatives to other consensus mechanisms such as PoW.
