Proof of Stake (Pos) is one of the most widely used consensus algorithms for blockchains. Since Ethereum (ETH) moved to Ethereum 2.0, the second largest blockchain in the world also uses Proof of Stake. It is therefore all the more important to understand what Proof of Stake is and how this algorithm works .

First I will tell you what Proof of Stake is, what the difference is with Proof of Work (PoW) and how this algorithm works, after which I will tell you which blockchains use Proof of Stake. There are several variants of this algorithm, which I will briefly tell you about.

Before you start reading this article, it is important that you know what a consensus algorithm is. You can read more about that in this article. Would you rather not read another article? Then you can also watch the video below, which explains in a few minutes what a consensus algorithm is.

 

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• View quickly
• What is Proof of Stake (PoS) and how does it work?
  • The difference between nodes and validators
  • The difference between Proof of Stake and Proof of Work
• Different variants of Proof of Stake
  • Leased Proof of Stake (Leased PoS)
  • Hybrid Proof of Stake (HPoS)
  • Delegated Proof of Stake (DPoS)
  • Other variants
• Which blockchains use Proof of Stake?
• Conclusion

What is Proof of Stake (PoS) and how does it work?

Proof of Stake (PoS) is a consensus algorithm used by blockchains to validate transactions and add blocks to the blockchains . As you may already know, a blockchain consists of a network of different machines. These machines are all connected to each other, and have a copy of the blockchain’s history on their hard drives.

A machine that validates transactions within a PoS network is called a validator. To become a validator, you must wager money (in the form of crypto coins or tokens). This is also called the stake, and can be compared to a kind of deposit .

There are also malicious validators, which accept transactions that should not actually be accepted. For example, this could be a private transaction in which money is sent that is not owned at all. Or there are validators that are offline for a large part of the time, which prevents the network from working properly.

The moment you, as a validator, do something that goes against the rules, such as validating erroneous transactions, the nodes within the network can impose a penalty . This penalty consists of a fine, which is paid from the stake that a validator has wagered. This can make it an expensive joke, because in most cases you have to bet a large amount as a stake.

It is not that you cannot stake crypto coins or tokens if you do not have a large amount of money in your possession. You can also stake your coins or tokens via another validator . In that case it is important to do proper research into the validator, because it is not always without risks.

If a validator on which you bet money makes a mistake, you may lose your money. On the other hand, when a validator receives a reward for his work, you will also receive a share of this. The height of this part depends on the height of the stake. The more money you bet, the more likely you are to get a higher reward.

Nowadays it is also possible to stake via various crypto exchanges (such as Binance or Bitvavo), so that you do not have to transfer your coins or tokens to a separate address.

In the video below I explain what Proof of Stake is and how this consensus algorithm works.

 

The difference between nodes and validators

I was just talking about nodes. Let me clarify what the difference between nodes and validators is, because they are sometimes confused.

Nodes are machines that are also part of the network. For example, they check whether other participants in the network participate well enough. They also have a copy of the blockchain on their machine. This way they can check whether all other participants have the correct copy on their machine.

However, a node is not always a validator . That means a node doesn’t always participate to validate transactions and add blocks. You can therefore see a node as the first level within a blockchain network.

A validator is always a node . This is therefore the second level within the blockchain network. A validator also performs the tasks of a node, while a node does not always perform the tasks of a validator.

The difference between Proof of Stake and Proof of Work

Proof of Stake is not the best known consensus algorithm out there. There is another algorithm that is more famous and more commonly used by blockchains. That’s Proof of Work . It is important that the difference between these two algorithms is clear, because many people sometimes confuse the two.

To begin with, it is important to know that machines that validate transactions within a PoS network are called validators , while those machines in a PoW network are called miners .

The main difference between these two algorithms is that validators are rewarded based on the stake they stake , while miners are rewarded based on the computing power they provide. In a PoW blockchain, miners are competing with each other for who has validated all transactions the fastest. The winner gets to add a new block to the blockchain, and receives a reward for this.

This means that all miners within a network are busy validating the same transactions. Ultimately, there is only one miner whose effort actually adds something to the blockchain. So a lot of energy is lost when mining .

Proof of Stake consumes less energy , because validators are chosen in advance. As a result, there is only one validator who has to make an effort, whose effort actually adds something to the blockchain.

Do you want to let the information you just read sink in again through a video? Then I advise you to watch the video below. It also discusses the difference between Proof of Stake and Proof of Work.

 

Different variants of Proof of Stake

A blockchain does not necessarily have to use the traditional version of Proof of Stake. It is a protocol that can be used in different ways . As a result, many different variants have been devised on the Proof of Stake mechanism, of which the variants below are the most well-known and used.

Leased Proof of Stake (Leased PoS)

It may happen that you do not have enough crypto coins or tokens to become a validator. The costs can be very high. It is therefore also possible to send crypto coins/tokens to a validator who uses your stake to stake it .

The reward received by the validator is distributed among the participants who have wagered tokens on the relevant validator. The more tokens you bet, the higher the reward will be. However, it is not without some risks. There are also validators who are scammers and run off with the tokens. Therefore, always do proper research into the performance of a validator before you just transfer coins and tokens.

Hybrid Proof of Stake (HPoS)

There are several blockchains that use a combination of Proof of Stake and Proof of Work . This is also referred to as Hybrid Proof of Stake, or hybrid Proof of Work. In this way, the advantages of both protocols can be used, making the blockchain a lot more powerful than if it only uses one protocol.

Delegated Proof of Stake (DPoS)

The most commonly used variant is without a doubt Delegated Proof of Stake. With this protocol, there are a single number of validators that validate transactions. This is just a small group of validators, which in this case are called delegates.

Delegates are elected by all token holders. They can vote for the nodes they think would be the best delegates. The more you stake within the network, the higher the power of your vote.

The video below takes a closer look at Delegated Proof of Stake.

 

Other variants

• Liquid Proof of Stake (LPoS)
• Proof of Stake Voting (PoSV)
• Bonded Proof of Stake (BPoS)
• Pure Proof of Stake (PPoS)
• Masternode strike
• Delegated Byzantine Fault Tolerance
• Anonymous Proof of Stake (ZPoS)

Which blockchains use Proof of Stake?

Proof of Stake is the second most used consensus algorithm in the world after Proof of Work. There are therefore many different blockchains that use this algorithm (or a variant of it, as you just read) . Let’s take a look at the most famous blockchains that use Proof of Stake as a consensus algorithm for their blockchain.

• Peercoin (PPC) – This was the first cryptocurrency to use the Proof of Stake algorithm, which was designed in 2012.
• Blackcoin (BLK) – After Peercoin, Blackcoin was one of the first cryptocurrencies to use the Proof of Stake mechanism.
• Nxt (NXT) – Nxt also uses the Proof of Stake algorithm.
• Firo (FIRO) – Formerly called ZCoin, but Firo also uses Hybrid Proof of Stake.
• Cardano (ADA) – The Cardano blockchain uses a variant based on the Proof of Stake algorithm.
• Algorand (ALGO) – Algorand uses Pure Proof of Stake (PPoS), which is a variant of Proof of Stake.
• Polkadot (DOT) – Polkadot uses a hybrid consensus mechanism with Proof of Stake.
• Solana (SOL) – Solana uses a proprietary algorithm called Tower Consensus, which is based on Proof of Stake.
• Avalanche (AVAX) – Snowflake is the consensus algorithm of the Avalanche blockchain, and is based on Proof of Stake.
• Tron (TRON) – Tron uses Delegated Proof of Stake (DPoS), which is based on Proof of Stake.
• Ethereum (ETH) – Ethereum has used Proof of Work since its inception, but this blockchain transitioned to using Proof of Stake in 2021, when Ethereum 2.0 was upgraded.
• DASH (DASH) – Dash uses Hybrid Proof of Stake.
• Waves (WAVES) – The Waves blockchain uses Leased Proof of Stake.
• EOS (EOS) – EOS uses Delegated Proof of Stake (DPoS), which is based on Proof of Stake.

While this is a long list, it doesn’t end there . There are dozens of other blockchains that also use Proof of Stake, or a variant of this algorithm.

When you come across a project that uses this algorithm, you will at least know how the network of this blockchain works. Everything is clearly explained in the video below, so that you no longer forget what Proof of Stake is.

 

Conclusion

Proof of Stake is one of the most widely used consensus algorithms in the blockchain world , after Proof of Work. However, it is not inconceivable that this will ever change. Most new blockchains use the Proof of Stake mechanism. This is mainly due to the advantages this algorithm offers over other algorithms.

The Proof of Stake algorithm consumes much less power than the Proof of Work mechanism . This algorithm also ensures that the blockchain is more scalable than a PoW blockchain, while the security of the blockchain does not deteriorate.

It is therefore not surprising that many blockchains already use Proof of Stake, such as Peercoin , Cardano , Algorand , Avalanche and Solano . Or yes, not all of them use the traditional variant. Many blockchains have developed their own variant of the Proof of Stake mechanism. As more and more new blockchains are added, the list of PoS variants will continue to grow.

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