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Proof of Stake (PoS) was first introduced in a newspaper by Sunny King and Scott Nadal in 2022 and intended to solve the problem of Bitcoin mining's high energy consumption. At that time, it cost an boilerplate of $150,000 a mean solar day to maintain the Bitcoin network. Today, this figure is at a staggering $6.7 one thousand thousand (if we presume a $0.12/watt cost and multiply that with the estimated 56,209,833 KWh of electricity that the Bitcoin network consumed on Oct. 13, 2022).

Rather than relying on the energy-dependent work of miners to add together blocks, Sunny and Scott suggested an culling method called "staking" where a deterministic algorithm would choose nodes based on the number of coins an private had. In other words, stakers would take more chances of existence selected to add a block to the chain and reap the reward if they "staked" more coins in their wallet.  They hoped this would avoid the ever increasing energy costs and hashrate difficulty of mining. However, their new consensus mechanism was not without its own bug.

4 Problems With PoS

There are 4 main challenges in designing a Proof of Stake system:

  1. Distribution. Since block rewards go to stakers, how do you distribute coins initially?
  2. Monopolization. Those with a significant amount of coins reap a majority of all future coins.
  3. 51% attack. Simply like how Proof of Work (PoW) has to exist wary of a 51% assail from a miner, and then too does PoS have to be wary of a staker who has a 51% pale weight.
  4. Null at Pale (NoS). PoS adds a block when a node meets a set of atmospheric condition which includes stake weight. Nevertheless, the money forks when 2 nodes meet these weather at the same fourth dimension. The fork is then resolved by other nodes signing ane of the 2 transactions. The hypothetical problem of NoS arises when 99% of all nodes sign both bondage because there is no cost (nothing at stake) to verify these transactions. Therefore a 1% staker could potentially "double spend" by paying with coins on one chain only then verifying the other.

In lite of this, the evolution of PoS tin be understood past each coin attempting to solve these bug in their ain way.  We volition at present await at Peercoin.

Peercoin

PPC

Sunny King created Peercoin (PPC) in 2022 to become the first cryptocurrency to implement Proof of Stake while nonetheless keeping Proof of Work (PoW). It addressed the iv issues of PoS in the following ways:

  1. Distribution. Peercoin uses a Prisoner of war-based decreasing distribution. In the kickoff, Pw was heavily emphasized for PPC'southward initial distribution stage merely has since then been decreasing.
  2. Monopolization. Coin historic period was implemented to prevent money-rich stakers from dominating the rewards.
  3. 51% attacks. PPC'south chain is completely secured past PoS even though it is a hybrid. Attacks are highly unlikely because it is incredibly expensive to perform an attack. The attacker must effectively purchase or bribe 51% of the staked coins in gild to perform this action. Whatsoever attack would significantly devalue the coin and cost the attackers a great deal.
  4. Nothing at Stake. PPC developers don't believe this would happen. Even so, Sunny implemented optional "checkpoints" at first in case there was a successful assault.  Now that the PPC's network has matured, checkpoints are in the procedure of existence phased out.

Blackcoin

BLK

This next phase of PoS history is chosen considered a pure proof of stake protocol without whatever mining and was get-go implemented by NXT on November 24, 2022. However, allow's consider another coin, Blackcoin, that was also a pure proof of pale that was released soon thereafter as it has a simpler protocol and had a fairer initial distribution phase.

Blackcoin was created by Pavel Vasin (a.k.a. Rat4) and was released in February 2022.  When Rat4 decided to create BLK, he prepare out to remove coin historic period and PoW.  He believed money age would increase the chance of a 51% stake attack as older aged coins would demand less than 51% of staking coins to cause a fork. He also believed that coin historic period disincentivized users from staking consistently. Rather, stakers were incentivized to remain offline for 90 days to maximize their chances of getting a stake thereby making the network less secure. Rat4'southward implementation of PoS v.2 protocol addresses the 4 problems of PoS in the post-obit ways:

  1. Distribution. BLK went through a temporary Proof of Piece of work phase with no pre-mine to ensure fair distribution.
  2. Monopolization. This was addressed via a off-white distribution period.
  3. 51% attacks. It is incredibly expensive to buy enough coins in order to perform this attack.  Also, the coin would lose significant value.
  4. Naught at Stake. BLK dev'due south also believed this was not a threat. All the same, BLK included checkpoints to protect against hard forks.  Checkpoints will be removed in PoS 3.

Ether

ETH

Since Blackcoin, there have been several iterations of the PoS protocol. For example, Bitshares was the first to implement Delegated Proof of Stake.  But the newest iteration of PoS is Ethereum's (ETH) endeavor at PoS.  The motivation for ETH to switch is primarily a desire to move towards a more eco-friendly and decentralized system.  If the Ethereum Virtual Machine is truly to be adopted world-wide, Bitcoin'due south current $6.seven million daily electricity cost would quickly be surpassed.

Ethereum's PoS system volition implement a Byzantine Mistake Tolerance (BFT)-mode PoS. Validators will be randomly assigned block rewards, however consensus is formed through a multi-round process where every validator votes for a chain. Ethereum is Non utilizing Proof of Stake at the moment and at that place accept been some doubts as to whether or not it will actually be implemented. With that existence said, here'due south how Ethereum hopes to solve the four ssues involved with PoS:

  1. Distribution. ETH has already been distributed with approximately 70% sold in it's ICO in 2022 representing 70% of total of Ether in circulation. Xi million was given to the Ethereum Foundation and continues its distribution via PoW.
  2. Monopolization. ETH has already been distributed.  Another mode ETH hopes to solve this consequence is by locking coins in a smart contract in guild to pale. Therefore, staking comes at the cost of liquidity.
  3. 51% attacks. As mentioned higher up, information technology is incredibly costly to buy or bribe nodes to participate in a 51% attack. Should an attack happen, Michael Gubik proposes utilizing social/business/exchange forums to select one of the forked chains in his Proof of Stake FAQ on Ethereum's github.
  4. Nothing at Stake. Validators volition be disincentivized from signing orphaned blockchains as they will be punished.

Conclusion

There have been many fully functional and secure iterations of PoS over the history of cryptocurrency from the Hybrid PoS-PoW to pure PoS to Delegated PoS.  The BFT-style PoS is the newest attempt to address the four main bug surrounding the protocol initially proposed past Sunny and Mark. Each coin reflects a different arroyo and each has its own strengths and weaknesses. However, the move to PoS reflects a larger philosophical move in the globe of cryptocurrency towards a more eco-friendly and decentralized system.

*It is important to note that that Pw has its own security concerns, the topic is beyond the scope of this article.  Also, a special thanks to the Nagalim from PPC and mindphuck from to BLK for their insight.  Also thank you to Michael Gubik for his write upwardly on Github.

**The article is written by ecurrency holder, a Cryptoeducator and Customs Organizer for the masses.