The core of a blockchain is its consensus protocol. This is a set of rules that guides and facilitates computers on the peer-to-peer network to act together as a single unit to update the transactions and smart contract states on the shared ledger. Discover now Casper's guide to Proof of Stake (PoS) blockchains.
Proof of Stake (PoS) is one of over ten consensus protocols a development team can choose to have in their blockchain design. Indeed, it is the protocol that about 60% of blockchains that have been launched use.
The Proof of Stake (PoS) consensus mechanism was first implemented on Peercoin, a cryptocurrency launched in 2012. Over time, many blockchain developers have picked it over the others. A decade later, some of the blockchains with the highest market capitalization and use are designed with this algorithm. The list of cryptocurrency networks includes Cardano, Solana, and Algorand.
Even Ethereum, the second largest blockchain, is transitioning to PoS from Proof of Work systems (PoW).
The PoS consensus protocol is popular in particular because it fixes the most concerning weaknesses of the PoW consensus protocol, especially as used on the Bitcoin blockchain network.
The initial use of PoS, like with PoW, was on blockchain networks that support only payments, such as Peercoin and Blackcoin. However, over time it has become the primary consensus algorithm used on blockchain networks that support the implementation of smart contracts and other decentralized applications (dApps) such as Solana, Algorand, Cardano, and the Casper Network.
In general, the consensus on the blockchain peer-to-peer network happens through the protocol, as executed on the core software, randomly picking one node at a regular interval to add transactions on a shared ledger or update the state of a smart contract on behalf of the entire network. The node that gets this responsibility is granted a block reward with either newly released native coins, the transaction fees users pay, or both.
The likelihood of a network node being picked increases with the amount of the native coins held in its wallet. The more coins a node has, the more chances it has to update the ledger on behalf of the network, and in return, the more rewards or transaction fees paid by users it is likely to earn.
On a blockchain peer-to-peer network, there are different types of nodes. The list includes light nodes, lightning nodes, and validator (full) nodes. The validator nodes perform the actual task of maintaining the shared ledger by validating transactions, adding new transactions, and updating smart contract states.
The validator node can have other token holders contribute to its coin holding so that it has a higher chance of being picked and earning the reward and the fees. This arrangement is known as delegating. Those who delegate their coins to validator nodes receive the validator’s stake and share in the rewards and fees it receives.
Other nodes facilitate the propagation of transaction information between users and the wider network. Others store a copy of the blockchain for users to access it, especially through wallet applications.
Proof of Work (PoW) was the first blockchain consensus protocol ever implemented. It is what the Bitcoin network uses. PoW systems are considered the most secure consensus protocol as one requires a significant amount of hardware and energy resources to attack it.
However, PoS is the most popular because it offers critical benefits that other protocols do not provide, including PoW.
The following are some of these benefits:
The biggest pushback to blockchain technology is that it harms the environment because of its energy consumption. Each cryptocurrency mining node on a PoW blockchain network has to process a significant amount of data through a hash function at exceeding rates. This process requires high computational power and, therefore, a significant amount of electricity for network participants.
On its part, PoS uses the coins nodes hold in their wallets as the mechanism for picking one of them to maintain the shared ledger on behalf of the cryptocurrency network. Therefore, a network that uses this protocol consumes an insignificant amount of energy, especially compared to what PoW networks consume.
Given that PoS uses negligible energy, its carbon footprint is low. Indeed, because PoS is eco-friendly, it offers blockchain technology the capacity to be part of the evolution towards a green future.
Over time, mining on blockchain networks like that of Bitcoin have become highly competitive. Besides the significant computational power and energy required, those who participate in bitcoin mining must acquire extremely powerful application-specific integrated circuit (ASIC) miners. These crypto mining machines can be quite costly.
Compared to PoW blockchain networks, the PoS networks need comparatively less expensive hardware machines to set up new nodes. Home computers can be turned into nodes on some cryptocurrency networks by simply installing and running the necessary client software.
The Casper Network is one blockchain that uses the Proof of Stake consensus algorithm. Meanwhile, it is designed to be secure and convenient as the foundation for processes and systems built using smart contracts.
Because it does not require significant amounts of energy and relatively costly hardware, the Casper Network can be highly decentralized.
The Casper Network is designed with the capacity to support dynamic smart contracts to automate processes and build systems for enterprises. The dynamism is achieved through highly robust oracle networks and also inherent capacity for creating highly upgradeable smart contracts.
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