Proof-of-stake (PoS) protocols are a class of
consensus mechanisms for
blockchain
A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...
s that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency. This is done to avoid the computational cost of
proof-of-work
Proof of work (PoW) is a form of cryptographic proof in which one party (the ''prover'') proves to others (the ''verifiers'') that a certain amount of a specific computational effort has been expended. Verifiers can subsequently confirm this exp ...
schemes. The first functioning use of PoS for cryptocurrency was
Peercoin
Peercoin, also known as Peer-to-Peer Coin, PP Coin, or PPC is a cryptocurrency utilizing both proof-of-stake and proof-of-work systems.
History
Peercoin is based on an August 2012 paper which listed the authors as Scott Nadal and Sunny King. Ki ...
in 2012.
Description
For a blockchain transaction to be recognized, it must be appended to the blockchain. In the proof of stake blockchain the appending entities are named ''minters'' or (in the
proof of work
Proof of work (PoW) is a form of Cryptography, cryptographic proof (truth), proof in which one party (the ''prover'') proves to others (the ''verifiers'') that a certain amount of a specific computational effort has been expended. Verifiers can s ...
blockchains this task is carried out by the
miners
A miner is a person who extracts ore, coal, chalk, clay, or other minerals from the earth through mining. There are two senses in which the term is used. In its narrowest sense, a miner is someone who works at the rock face; cutting, blasting, ...
); in most protocols, the validators receive a reward for doing so.
For the blockchain to remain secure, it must have a mechanism to prevent a malicious user or group from taking over a majority of validation. PoS accomplishes this by requiring that validators have some quantity of blockchain tokens, requiring potential attackers to acquire a large fraction of the tokens on the blockchain to mount an attack.
Proof of work (PoW), another commonly used consensus mechanism, uses a validation of computational prowess to verify transactions, requiring a potential attacker to acquire a large fraction of the computational power of the validator network.
This incentivizes consuming huge quantities of energy. PoS is more energy-efficient.
Early PoS implementations were plagued by a number of new attacks that exploited the unique vulnerabilities of the PoS protocols, eventually two dominant designs emerged: so called ''
Byzantine Fault Tolerance
A Byzantine fault (also Byzantine generals problem, interactive consistency, source congruency, error avalanche, Byzantine agreement problem, and Byzantine failure) is a condition of a computer system, particularly distributed computing systems, ...
-based'' and ''Chain-based'' approaches.
Attacks
The additional vulnerabilities of the PoS schemes are directly related to their advantage, a relatively low amount of calculations to be performed while constructing a blockchain.
Long-range attacks
The low amount of computing power involved allows a class of attacks that replace a non-negligible portion of the main blockchain with a hijacked version. These attacks are called in literature by different names, ''Long-Range'', ''Alternative History'', ''Alternate History'', ''History Revision'', and are unfeasible in the PoW schemes due to the sheer volume of calculations required. The early stages of a blockchain are much more malleable for rewriting, as they likely have much smaller group of stakeholders involved, simplifying the collusion. If the per-block and per-transaction rewards are offered, the malicious group can, for example, redo the entire history and collect these rewards.
The classic "Short-Range" attack (
bribery attack) that rewrites just a small tail portion of the chain is also possible.
Nothing at stake
Since validators do not need to spend a considerable amount of computing power (and thus money) on the process, they are prone to the ''Nothing-at-Stake'' attack: the participation in a successful validation increases the validator's earnings, so there is a built-in incentive for the validators to accept all chain forks submitted to them, thus increasing the chances of earning the validation fee. The PoS schemes enable low-cost creation of blockchain alternatives starting at any point in history (''costless simulation''), submitting these forks to eager validators endangers the stability of the system. If this situation persists, it can allow
double-spending
Double-spending is a fundamental flaw in a digital cash protocol in which the same single digital token can be spent more than once. Due to the nature of information space, in comparison to physical space (as in: valuable physical resources), a di ...
, where a digital token can be spent more than once. This can be mitigated through penalizing validators who validate conflicting chains ("
economic finality") or by structuring the rewards so that there is no economic incentive to create conflicts.
y Byzantine Fault Tolerance based PoS are generally considered robust against this threat.
Bribery attack
Bribery attack, where the attackers financially induce some validators to approve their fork of blockchain, is enhanced in PoS, as rewriting a large portion of history might enable the collusion of once-rich stakeholders that no longer hold significant amounts at stake to claim a necessary majority at some point back in time, and grow the alternative blockchain from there, an operation made possible by the low computing cost of adding blocks in the PoS scheme.
Variants
Variations of stake definition
The exact definition of "stake" varies from implementation to implementation. For instance, some cryptocurrencies use the concept of "coin age", the product of the number of tokens with the amount of time that a single user has held them, rather than merely the number of tokens, to define a validator's stake.
Delegated proof of stake
Delegated proof of stake (DPoS) systems separate the roles of the stake-holders and validators, by allowing stakeholders to delegate the validation role.
Implementations
The first functioning implementation of a proof-of-stake cryptocurrency was
Peercoin
Peercoin, also known as Peer-to-Peer Coin, PP Coin, or PPC is a cryptocurrency utilizing both proof-of-stake and proof-of-work systems.
History
Peercoin is based on an August 2012 paper which listed the authors as Scott Nadal and Sunny King. Ki ...
, introduced in 2012.
Other cryptocurrencies, such as Blackcoin,
Nxt
NXT may refer to:
Professional wrestling
* ''WWE NXT'', a professional wrestling television program produced by WWE that began in 2010
** NXT (WWE brand), WWE's Florida-based brand and former developmental territory
* ''NXT UK'', the British spin- ...
,
Cardano, and
Algorand
Algorand is a proof-of-stake blockchain cryptocurrency protocol. Algorand's native cryptocurrency is called ALGO.
History
Algorand was founded in 2017 by Silvio Micali, a professor at MIT. Algorand is composed of a company and a foundation. ...
followed.
However, , PoS cryptocurrencies were still not as widely used as proof-of-work cryptocurrencies.
In September 2022,
Ethereum
Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether (Abbreviation: ETH; sign: Ξ) is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capita ...
, the world second largest cryptocurrency in 2022, switched from proof of work to a proof of stake consensus mechanism system, after several proposals
[ and some delays.]
Concerns
Security
Critics have argued that the proof of stake model is less secure compared to the proof of work model.
Centralization
Critics have argued that the proof of stake will likely lead cryptocurrency blockchains being more centralized in comparison to proof of work as the system favors users who have a large amount of cryptocurrency, which in turn could lead to users who have a large amount of cryptocurrency having major influence on the management and direction for a crypto blockchain.
Energy consumption
In 2021 a study by the University of London
The University of London (UoL; abbreviated as Lond or more rarely Londin in post-nominals) is a federal public research university located in London, England, United Kingdom. The university was established by royal charter in 1836 as a degree ...
found that in general the energy consumption
Energy consumption is the amount of energy used.
Biology
In the body, energy consumption is part of energy homeostasis. It derived from food energy. Energy consumption in the body is a product of the basal metabolic rate and the physical activity ...
of the proof-of-work based Bitcoin
Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
was about a thousand times higher than that of the highest consuming proof-of-stake system that was studied even under the most favorable conditions and that most proof of stake systems cause less energy consumption in most configurations. The researchers also noted that the energy consumption of different proof-of-stake systems was divergent with permissioned systems that used less validators being more energy efficient than permission-less systems that don't. They also couldn't find the energy consumption of a proof-of-stake system on a large scale, as such a system did not exist at the time of the report.
In January 2022 Vice-Chair of the European Securities and Markets Authority
The European Securities and Markets Authority (ESMA) is an independent European Union Authority located in Paris.
ESMA replaced the Committee of European Securities Regulators (CESR) on 1 January 2011. It is one of the three new European Supe ...
Erik Thedéen
Erik Hilding Thedéen (born 1 September 1963) is a Swedish economist, business leader and civil servant, who served as Director General of the Swedish Financial Supervisory Authority from 2015 to 2022. Since 1 January 2023 he serves as the Gove ...
called on the EU to ban the proof of work model in favor of the proof of stake model due to its lower energy consumption.
References
Sources
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{{Cryptocurrencies, state=expanded
Cryptography
Cryptocurrencies