In Part 1 we spoke about the PoW consensus mechanism and how the mining plays a major role in the blockchain security. We’ve also explained the basics on how to be a miner and what it requires.
In Part 2 we will talk about Proof-of-Stake (PoS) and how it’s different from the Proof-of-Work (PoW) consensus mechanism.
Proof-of-Stake – Advise checking this guide Here before starting.
This algorithm is substantially different from the PoW consensus algorithm, it uses a mechanism called “staking” where the nodes stake an amount of the specific coin, becoming a validator, who then will have the chance to validate the blocks and get a reward. If you do something fraudulent to compromise the blockchain, you will lose your stake and therefore your staked funds.
How does the mining with PoS works? – Technical Side of Things
PoS-based blockchains replace miners with validators who will lock up some of their coins as stake (deposit). A group of validators takes turns proposing and voting on the next block, and the weight of each validator’s vote depends on the size of its stake.
When the validators discover a block which they think can be added to the blockchain, they will validate it by placing a bet on it.
The validators will get a reward proportionate to their bets and anyone who holds the blockchain’s base cryptocurrency can become a validator by sending a special type of transaction to lock up their fund.
The more a user stakes, the better their chance of being selected since they’d have more funds locked, and acting maliciously would see them set back by a greater amount than someone who stakes less.
In the majority of PoS consensus algorithms, the incentive to be a validator of blocks is a pay-out in the form of transaction fees, in opposition to freshly created currency as in PoW systems.
Is the 51% Attack same as PoW?
In theory, it’s much more inconvenient complete an attack on PoS-based blockchains in comparison with PoW-based blockchains.
In PoS you have to “Stake” a certain amount of coins in order to get the chance to be selected for a block creation and if you do something fraudulent you will lose the funds staked.
Also possessing the 51% of all coins in order to make an attack on a PoS-based blockchain is very hard to be achieved and very inconvenient since it’s massively expensive and you would spend a fortune just to see these funds gone after the attack.
Pros & Cons of the Proof-of-Work consensus
The PoS mechanism looks more democratic on certain aspects, you don’t need any expensive equipment to be a validator, also the energy consumption is massively lower than PoW, which requires an exaggerate amount of electricity to work in comparison.
The issue that can arise is the “nothing-at-stake” problem, wherein block generators have nothing to lose by voting for multiple blockchain histories, thereby preventing a consensus from being achieved. Because unlike in proof-of-work systems, there is little cost to working on several chains. Check to know more about it Here
Another issue can be represented by the arising of “Staking Pools”, as the mining pools before them, they could obstacle the network decentralisation converging too much power in few players.
How can you be a validator? What’s a “Masternode”?
As we said anyone can be a validator in a PoS-based blockchain, what changes it’s the chance to be selected for a block’s validation, which is higher the more you stake. The only thing you need is a terminal, PC o laptop, and some of the cryptocurrency in question.
A “Masternode” is a special node who’s granted a certain reward on yearly basis, other than voting rights into the platform and other advantages.
To be one, you need to stake a specified amount of the coin in question as collateral and usually, it’s a big stake like for DASH where we have a masternode cost of 1,000 DASH, which is currently (Dec. 2018) around $80,000 USD.
Between the best Masternode in December 2018 we can find:
- DASH – Cost 1,000 DASH – Setup a Masternode guide;
- PIVX – Cost 10,000 PIVX – Setup a Masternode guide;
- ZCOIN – Cost 1,000 XZC – Setup a Masternode guide;
- Blocknet – Cost 5,000 BLOCK – Setup a Masternode guide;
In conclusion, there are pros and cons coming from both the consensus mechanisms and we’re sure in the future we will see many more variations and improvements to avoid the always growing centralisation that tries to control the whole network. I hope these two guides were helpful and remember to always Do Your Own Research before investing and mining cryptocurrencies.
By Marco Di Maio