Proof of stake (PoS) is a type of consensus mechanism or protocol that uses the amount of stake (or value) held in the system to determine consensus. In essence, a consensus protocol is what controls the laws and parameters that govern the behavior of blockchains, such as a type of rule set that each participant in the network adheres to. Since blockchains are not controlled by any central authority, a consensus protocol is used to allow distributed network participants to agree on the history of the network captured in the blockchain - to come to a consensus on what has happened, and continue from a single source of truth.
Cardano is based on the groundbreaking proof of stake Ouroboros consensus protocol, the first blockchain consensus protocol developed through peer-reviewed research. At the heart of this PoS protocol are stake pools, trusted server nodes managed by a stake pool operator to which ada holders can delegate their participation. Stake pools are used to ensure that everyone can participate in the protocol, regardless of technical expertise or availability to keep a node running. These stake pools focus on maintenance and keep the combined participation of multiple stakeholders into a single entity.
How does proof-of-stake compare to proof-of-work protocols?
In contrast, proof-of-work (PoW) is a synchronous protocol that encourages miners to compete to be the first to solve any problem within the block. A reward system is used to incentivize problem solving. However, this approach comes at a cost, with higher electricity usage and more time to solve problems within the blockchain. These factors can slow down the network significantly and make it costly to maintain.
Proof of stake features
One of the key features of PoS is that as the value of a user increases, so does the opportunity to maintain the ledger. This means the opportunity to produce new blocks that can be added to the blockchain and timestamped accordingly. The creator of a new block is chosen based on a combination of random selection and a determination of their stake, or wealth. Within the blockchain a sort of leader election occurs. It is worth remembering that within a proof-of-participation protocol, participants accumulate transaction fees, thus adding to their wealth as they go along. This approach encourages steady and stable growth of the blockchain and reduces instances of stagnant transactions that can impede the growth of the chain.
Main advantages of proof of stake
Some of the main advantages of PoS over PoW are:
rigorous security protocols are incorporated into a proof-of-stake protocol.
centralization reduction - the risk of centralization is reduced by issuing penalties for selfish practices within the network.
energy efficiency - energy consumption is extremely efficient as less electricity, as well as hardware resources, are needed to produce and run the blockchain.
cost efficiency - proof-of-stake currencies are much more cost-effective than those running on proof-of-work protocols.
