Blockchain: the Proof of Stake (PoS)

The stake and the forger.

Blockchain: the Proof of Stake (PoS)

Into the blockchain, the Proof of Stake aims at reaching consensus in the blockchain network as for Proof of Work, but what differs is how the objective is achieved.

The PoS doesn’t require miners, but “Validators“, also called “Forgers“, that are rewarded thanks to commissions on transactions. 

The system may seem complicated, but it isn’t: it is based on the stake, or the amount of money decided by the validator. He/she will block, freeze an amount of money at will inside the system to be then chosen to forge the block. The more money is frozen, the higher the chances to be picked as the validator node. 

The validator, in a nutshell, isn’t required to perform any intricate work as in PoW

The problem of “the rich will be richer”: solutions.

This is not the only condition to participate in a PoS system; otherwise, only the wealthiest member will be picked as the validator. Other rules add to the previous, based on the created blockchain, the difficulty level, governance, and so on. 

Some of the most common implemented rules are:

-“Randomized block Selection“: a combination between the lowest hash and the most significant stake. 

-“Coin Age Selection“: based on how long the validators have left frozen their tokens as stake. It is calculated multiplying the number of days for the number of coins. When a node forges a block, its coin age is reset, and it needs to wait a specific time before being picked again – this impedes to high stake nodes to rule on the blockchain.

-“Delegated Proof of Stake“: BitShares, for example, requires 101 delegates and random picking six. The pro is that in this way they should act responsibly, the con is that there may be Sybil attacks. In this case, a single user may simulate the vote of the other five delegates. 

Is important to remember that if a node wants to stop being part of the forging process, it has to wait before accessing the stake and rewards. In this way, it leaves the time for the network to check if it added malicious blocks in the blockchain

The stake as an incentive.

The stake works as an economic incentive, dissuading the forger node to validate or create malicious transactions. If the network finds a fraudulent transaction, the forger node loses part of its stake, as well as the right to participate as a forger in future. So, as long as the stake is higher than the reward, the validator that tries to game the system would lose more than what would earn. 

The “Network control” case.

In the case of a node reaching a majoritarian stake in the blockchain network, it would be in control: “51% attack”. Based on the value of a cryptocurrency, such an attack is considered harder as the value rises: to command the blockchain, one has to acquire 51% of shares. 

Possible advantages of PoS.

Massive and centralizing mining pools are not necessary for such a system, so it would be even more decentralized, tending to randomization. Security would benefit, and it would become easier to access and energy efficient.

Moreover, since in this way there aren’t new coins as rewards, the price of the currency tends to be stable, possibly achieving an objective often pursued in the blockchain world: “stable coin”.

The “Nothing at stake” case and possible solutions.

Some authors claim that the Proof of Stake isn’t an ideal option to build a distributed consensus protocol. The biggest problem remains the so-called “nothing at stake”. 

It means that in the case of a ramification of the blockchain, or every other kind consensus disagreement, one can vote in both forks since it has stakes in each of them. 

In PoS it is not computationally expensive to work on all existing forks, so it may be economically advantageous to do so.

Many tried to solve these problems:

-Peercoin has put in place some checkpoints, signed with the private key of the programmer and then centrally vehiculated by the system. Each one of them is a fixed point, and it can’t be reorganized either in itself or in the part that it approved. So, the developer is the central authority, a feature that makes the blockchain heavier.

-Nxt allows for the reworking of a definite number of blocks: 720. Possible consequence: the client may “follow” a fork of 721 blocks, not checking if it is the longest one, preventing consensus. 

-Ethereum – Slasher: users can “punish” an “impostor” that forges forks of the blockchain. The user would have to sign twice to create a fork, and he/she will be punished for creating a fork without any stake. 

In conclusion: in PoS, it is possible and profitable working on multiple forks of the Blockchain. Those who believe in the PoS is that “most common attack scenarios are impossible or so hard to prevent that have only theoretical soundness.