The most prominent Proof of Stake feature is that it emphasizes capital power over computational power. So instead of starting a trade by running a piece of equipment, it is necessary to have an asset to stack. In the PoS protocol, a user holding more cryptocurrencies can also increase his power in the network. The verification process is based on some rules.
Users with more assets in their wallet are more likely to be authenticators. This is where the concept of “staking” comes from. The PoS protocol is based on wallet holders earning by confirming transactions. The user with more assets gets a bigger share of the revenue. However, it should be noted that this does not work in the same way in all PoS types.
To prevent the wealthiest stakeholder from monopolizing the network, the Proof of Stake protocol uses multiple options for block definitions. The most common PoS selection types are random and cryptocurrency age selection.
In the random selection, those who approve transactions are selected among the weakest nodes in terms of computation (hash) value but the richest in terms of share (share) value. In cryptocurrency age selection, users who hold the asset the longest are selected as validators, and after verification, these users are rewarded.
Types of Proof of Stake
The Proof-of-Stake protocol, which highlights the asset ownership of users, has evolved over time and started to be offered with different options. Delegated Proof of Stake (dPoS) and Leased Proof of Stake (LPoS) are the prominent types of PoS.
Delegated Proof of Stake (DPoS)
In the Proof of Stake protocol based on cryptocurrency ownership, a user has the right to verify transactions and generate blocks by keeping their crypto assets in their wallet connected to the relevant blockchain. dPoS, on the other hand, comes with some additional features and leverages the power of stakeholders to resolve consensus by voting fairly.
It uses a social reputation system to drive consensus across its Delegated Proof-of-Stake (dPoS) blockchain network. Referred to as the least decentralized protocol compared to others, dPoS aims to give cryptocurrency holders a say in the management of the network.
Unlike the Proof-of-Stake system, users delegate their crypto assets in their wallets to another user. Cryptocurrency asset is not transferred from the wallet, but is considered as the asset of the delegated user, increasing the delegated user’s voice in the network. The person who receives the right to delegate from other users receives a larger share of the revenues in the network and shares the revenue with the delegates in proportion to their shares.
Leased Proof of Stake (LPoS)
In the Proof of Stake protocol, users are selected according to certain criteria and validate blocks. In other words, they cannot generate income from every block produced. However, in the Proof of Leased Stake (LPoS) protocol, users are allowed to lease a certain percentage of an entire node. This system works exactly like PoS, but it also uses a lease method to provide an incentive to participate for users who hold small amounts of assets. Among the cryptocurrencies using the LPoS protocol, the most well-known is Waves.
Users lease the cryptocurrency in their wallets to other users who approve transactions on the network. In the leasing process, the leased amount does not come out of the user’s wallet, but is closed for withdrawal and buying and selling transactions. The leased user receives a larger share of the income while performing mining activities and shares his earnings with the stakeholders in proportion to their shares. The user can terminate the lease or lease more cryptocurrencies at any time.
The proof-of-stake protocol speeds up the cryptocurrency issuance and transfer approval processes according to the Proof-of-Work protocol. You can buy and sell PoS mining Neo (NEO), Tezos (XTZ), or Cosmos (ATOM) by signing up to any exchange.
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