Proof of shares is a way to maintain the security of Blockchain networks and an alternative to proof of work (extraction). Proof of Shares People who wish to participate in transaction verification and blockchain work can purchase the network’s original digital currency and assign it to the network. The network also rewards creditors with the same digital currency for the amount of assets and how long the assets are locked. In this article with the help an essay From the Ledger website, we simply explain the stock proof algorithm and review its benefits over proof of work.
What is a stock proof consensus algorithm?
Proof Of Stake (PoS) is a consensus algorithm in Blockchain based networks. Before we go any further, we need to know what a consensus algorithm is.
Consensus algorithm It is the way in which participants in a decentralized network agree with each other and reach a single consensus on transactions and blocks.
As you know, in a decentralized Blockchain network like Bitcoin, everyone can control the network and in fact everyone owns the network. The main issue in such networks is security. How can we be sure that the network will work flawlessly? What if a saboteur wants to do something on a fraudulent network? What guarantee is there that one person will not steal another bitcoin? The solution to these problems is the consensus algorithm. The consensus algorithm includes the rules and conditions under which participants can ensure the correct operation of the network.
For example, in Bitcoin, the consensus algorithm of this network is called Proof of Work. According to this algorithm, which is the same law, anyone who wants to participate in the production of blocks must prove his correctness by paying a price (processing power and power consumption) and compete with other accreditors (miners) for rewards. Thus, if someone wants to carry out malicious activity on the Bitcoin network, he has to provide more processing power than honest people (all other miners), which has no economic justification and is not logical at all.
Let’s go to proof of stocks. According to this algorithm, validators who want to participate in the production of blockchain and be rewarded must buy native network tokens and assign them to the network, or more precisely, “stake”. Sharing is done by locking tokens in the Blockchaink for the purpose of creating and approving blocks. Creditors receive rewards directly and in proportion to the amount of their shares. The reward is based on return on investment (ROI) and encourages nodes, or validators, to do network validation work. Thanks to the stock consensus algorithm, if someone wants to attack a network, they have to provide a large part of the tokens of a network (for example, 40% of the total tokens), which is very difficult due to the principle of supply and demand. Also, the price of those tokens will probably fall with the attack, and in fact, the first person to lose is the attacker himself.
Peercoin was the first digital currency to implement the stock proof consensus model on a full scale, and now Polkadot, Ias, Tezos, Cardano, and dozens of other large digital currencies use stock proof or its modified form. Ethereum is the largest digital currency that has decided to move from proof of work to proof of stock.
Proof of stock with less energy consumption, less damage to the environment. This is very important compared to the Proof of Consensus (PoW) algorithm used in Bitcoin; Because proving the work requires considerable energy. In addition, it makes proving network shares more scalable, and we will see cheaper and faster transactions in chains based on this algorithm.
Read more about this: Proof of work and proof of stocks, concept and differences
In stock-based blockchains, credentials are selected to generate the next block based on their stock. The selection process is often done with random functions so that there is no discrimination between validators. However, the more stocks there are, the better the chances of producing the next block. The block provided by the validators is then handed over to their counterparts to validate the new block and, if approved, add the new block to the Blockchaink.
Benefits of stock proof
Proof of stock can be useful in two ways:
- For the network
- For validators
Benefits for networking
There are several attractive components to stock proof design. Because rewards and financial incentives are offered in the form of native tokens, stock proofing avoids the difficult computational proof-of-work process, which was more like a lottery, eliminating the extra energy spent on reaching a consensus in the proof-of-work algorithm. he does. This has several important implications for network performance and security.
In terms of performance, the stock proof consensus plan is such that transactions are finalized quickly; For example, it takes 6 confirmations for a bitcoin transaction to be finalized, and since it takes 10 minutes to generate each block in a bitcoin blockchain, final confirmation of a bitcoin transaction takes an hour. has it. However, in the IAS network, which uses stock proofs, for example, each transaction is finalized in 2 to 3 seconds.
Therefore, in stock proofs, block creation as well as validation and network nodes reach agreement and consensus much faster than the proof proof algorithm. As a result, stock-based networks perform better in terms of the number of in-chain transactions per second (TPS) and the transfer of assets across the network.
In terms of security, validators tend to be honestly involved in creating blocks and verifying transactions for two main reasons.
First, credentials possibly control a significant portion of network tokens, even tokens that are not locked in the network. This financially encourages them to secure the network; Otherwise, poor network security can have a negative effect on token prices.
The second reason is that the mechanism for locking tokens and stocks is such that if the validator engages in malicious activity, generates counterfeit blocks or manipulates transactions, the tokens locked in the network will be confiscated and so-called “slash” ( Slash) میشوند. It should be noted that the slashing mechanism may not be implemented in all protocols.
Benefits for digital currency holders
Today, there are several ways to make money through equity. These methods depend on the porcelain block you are using. Before participating in any protocol, be sure to get enough information about it.
Rewards for maintenance
Users can only be rewarded by keeping coins in their wallets for a specified period of time, and no special action is required to share these coins. This reward is based on the number of coins kept in their wallets and (often) the amount of time they keep them. There are two ways to receive this reward: either the protocol itself pays the reward automatically or the user can do it himself.
Rewards for participation or representation
The user can give a portion of his stock to a validator to secure the network, and the validator participates in the network on behalf of the user. The creditor himself rewards this; In fact, the creditor gives the user a portion of the profits he or she earns from the represented coins.
Receiving this type of reward can also be automatic and protocol-based or can be done at the discretion of the validator.
Disadvantages of stock proof
The design of the game theory used in the stock proof consensus algorithm is much more complex than the proof work; Because it has to consider a whole new set of incentive routes. Critics have pointed to several weaknesses in the algorithm, such as a long-range attack, which could have negative consequences for the complex nature of stock proof. In a long-range attack, the hacker creates branches on the Blockchaink, starting with the Genesis block (the first block) and taking control of the entire main chain.
In addition, proof of shares works on the basis of shares and in accordance with the financial assets of individuals. In other words, the more tokens, the higher the return on investment, and the richer gets richer every day. Likewise, receiving and accumulating more profits by major investors can give more power to wealthier creditors, and this may be a threat to the decentralization of the network validation process.
Proof of stock income is on average between 6 and 10 percent per year, which means that people who make long-term investments in a digital currency can also rely on stock proof income. However, this revenue is generally lower than that of mining, which has led to criticism of the algorithm.
Will stock proof become the new standard?
Over the past few years, the stock consensus algorithm has found a special place among those public blockchains that seek to improve the underlying performance of the Bitcoin network. Such blockchains can support more applications and transactions over a period of time. In addition, innovative initiatives that have resulted in stock proofs, including proof of bonded PoS, proof of delegated PoS, and other types of solutions have been developed to meet the specific needs of the network.
Ethereum, the popular smart contract platform, is currently in the process of changing its network consensus algorithm from proof-of-work to proof-of-stock to provide a better and more efficient response to network performance demand. Other networks are now operating on a stock-based basis, such as the Cosmos interactive blockchain network, which is the first example of a full-scale stock-proof implementation in the entire Blockchain industry since its inception.
In addition, stock proofing gives more validity and validity to ninety network operators than in proof-of-business blockchains such as Bitcoin. Less barriers to entry into the process, which only requires a certain number of tokens, are attractive to users who do not want to be overwhelmed by the heavy costs of bitcoin mining ASIC hardware.
Overall, in the rapidly evolving digital currency space, stock proof algorithms are gaining ground every day. Of course, its long-term stability among public fold blocks has not yet been conclusively tested; But many experts, participants and observers of the digital currency industry support and support this algorithm.
Proof of stock is a consensus algorithm used in the blockchain of some digital currencies such as IAS and Cardano, and Ethereum is also going through the steps that will eventually lead to the implementation of the stock proof mechanism.
Contrary to the evidence that computer hardware was used to extract digital currencies, stock proof uses the use of native network coins to validate blocks in the Blockchain.
Proof of stock has many advantages over proof of work, such as saving on electricity consumption, eliminating unnecessary extraction, faster and more scalable networking, and not taking money out of the digital currency ecosystem to buy hardware.