PoS, DPoS, HPoS: Variations in Proof-of-Stake Consensus Models


Proof-of-Stake consensus mechanisms come in a variety of flavors, each with its unique approach for achieving effective, resource-efficient network governance.

Summary

Consensus mechanisms based on Proof-of-Stake (PoS) were created to solve inefficiencies in traditional Proof-of-Work protocols (PoW). Instead of relying on crypto mining, PoS blockchains validate and record transactions using nodes chosen based on their stake in platform tokens.

Because it is substantially more scalable, adaptable, and environmentally friendly than PoW iterations, the bulk of new blockchain systems use some type of PoS consensus method.

Contents

Proof of Stake: A Departure from Proof of Work

When confirming the record of transactions that have occurred, a vital part of any blockchain network is how it reaches consensus across its dispersed network.

The Proof-of-Work (PoW) consensus process is used by Bitcoin and many other blockchain networks. Hardware operators known as miners contribute computational power to the validation of network transactions under a Proof-of-Work design and are compensated in crypto for doing so.

On PoW protocols, this crypto mining process is what drives transaction execution and recording.

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The growth of PoW networks, on the other hand, has sparked a hardware arms race among miners, who need more and more complex equipment to maximize their odds of effectively mining new blocks.

The security and decentralization of a blockchain network’s architecture are hampered by this concentration. Furthermore, blockchain networks that rely on crypto mining face strict scalability constraints and are increasingly being chastised for being inefficient in terms of energy use.

Following in Bitcoin’s footsteps, most next-generation blockchain networks have increasingly embraced a newer consensus mechanism based on the Proof-of-Stake (PoS) concept.

PoS consensus techniques, first described in 2011, are a reimagining of the network consensus process, aimed to alleviate the inefficiencies and constraints inherent in standard PoW transaction verification processes.

‘Original’ Proof-of-Stake Consensus Mechanism

Rather than relying on energy-intensive hardware mining to confirm transactions, Proof of Stake depends on network devices, or nodes, to verify and record transactions and earn crypto rewards.

This is mirrored in the architecture for the planned Ethereum 2.0 network upgrade. Rather than hashing data to gain the ability to validate transactions, node-based validation is based on computational randomness, which is weighted by the amount of financial collateral a node has pledged to the network through staking.

Staking tokens to a network is possible for anyone, and you can even donate your tokens to staking pools that handle the procedure for you. To choose which nodes will validate transactions, PoS algorithms employ a variety of methods:

The number of tokens staked: the more tokens staked, the more likely you are to be chosen for validation.
The age of the staked tokens: the older the tokens are, the more likely they are to be chosen to validate (once that stake is used to verify a block, its age is reset to zero).
Random selection: While the PoS validator selection process favors larger token holders, a degree of randomization is still inherent in this system to avoid centralization.

Because this pseudo-random selection process is based primarily on passive crypto deposits rather than processing power, PoS systems are significantly more resource-efficient than PoW systems, which require mining machines to compete with one another indefinitely.

PoS lowers the technological obstacles to participating in a network’s validation process by removing the requirement for powerful mining equipment.

Because the threshold for access has been lowered, there is more decentralization, and nodes are scattered more broadly, resulting in increased security.

Míg a Tét bizonyítása népszerű konszenzusos technika, amely a PoW protokollokat sújtó sok nehézséggel foglalkozik, a visszautasítók azt állítják, hogy a PoS protokollok a nagy tokenbirtokosokat részesítik előnyben, a gazdagok pedig minden validátor díjjal gazdagodnak.

Bár ez jogos kritika, a legfőbb tokenbirtokosok anyagi ösztönzést kapnak, hogy őszintén működjenek érvényesítőként, mert a hálózat bármilyen károsodása vagy zavara leértékeli saját jelzőiket, és ezáltal növeli a hálózat biztonságát.

To become a network validator, most original PoS networks need a minimum staking amount. However, in order to ensure optimal decentralization and equitability, many blockchain projects are focused on limiting the danger of favoring larger token holders at the expense of lesser users.

Several variations of the PoS consensus mechanism have been created in order to improve validator selection and network performance.

Delegated Proof of Stake

In a Delegated Proof-of-Stake (DPoS) architecture, network users can delegate the creation of new blocks to a set number of delegates, commonly known as “witnesses.” Users vote on which delegates will validate new blocks using a democratic voting system that weights votes based on the number of tokens held in platform crypto wallets.

Users can replace ineffective delegates with another validator at any moment during the voting process. This means that delegates must act honestly and successfully in order to maintain their voters’/stakeholders’ support.

Delegates who have been approved divide block production rights evenly among themselves.

Stakeholders receive a share of a delegate’s block production rewards in proportion to their token holdings staked with that delegate in exchange for backing that delegate.

Because of the stake-weighted voting and delegation process, DPoS’ block creation process is arguably more democratic than traditional PoS protocols, and because the threshold to participate in the DPoS voting process is so low, DPoS is widely regarded as one of the most egalitarian ways to achieve consensus on decentralized networks.

DPoS systems can also create blocks faster and process more transactions per second than many other consensus protocols since a small set of validators can reach consensus faster than a system that requires network-wide consensus.

However, because DPoS protocols impose a hard limit on the number of active delegates who can create new blocks (usually 20-100), this arrangement still leads to some centralization.

DPoS allows all token holders to influence network choices, unlike typical PoS protocols that are pseudo-random but weighted in favor of large token holders. As a result, DPoS is the most extensively used PoS variation today.

DPoS is used by a number of prominent projects, including EOSIO and TRON.

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Leased Proof of Stake

Leased Proof-of-Stake (LPoS) is a consensus mechanism popularized by the Waves blockchain, in which users rent crypto tokens to a node that will operate as a network block creator.

The more tokens a node stakes, the more likely it is to be picked to generate the next block and collect the associated reward, and token owners have the option to terminate their lease at any moment.

As a result, smaller token holders who would normally be unable to participate in the block generation process in a typical PoS system can pool their assets in order to boost their chances of obtaining a piece of the network’s transaction fee.

Users can search around for the best node for their investing strategy, as certain nodes may offer higher rewards.

LPoS protocols are best suited for networks with high technical requirements, such as those that demand a full node capable of validating on-chain transactions.

This consensus mechanism incentivizes smaller users to support the most efficient validators in a transparent and long-term self-serving manner, rewarding the best-performing nodes.

This consensus mechanism is similar to DPoS in terms of net effect. LPoS token holders, on the other hand, can directly borrow and lend tokens to participate in the block creation process themselves, whereas DPoS validators are chosen by the top stake-weighted votes of other network members.

Pure Proof of Stake

Algorand, a public blockchain project focusing on user-friendly decentralized application (dApp) development, uses Pure Proof of Stake (PPoS), a highly democratized type of PoS.

PPoS consensus mechanisms, unlike many other versions of PoS, lack a built-in penalty mechanism to prohibit malicious node behavior or potential security flaws like duplicate block validations. PPoS, on the other hand, has low minimum staking requirements for participating in and protecting the network, making it accessible to all users.

This provides a framework in which rogue individuals disrupting or hijacking the network would be financially self-destructive.

To participate in the network staking process on the Algorand network, you simply need one ALGO token. Ethereum 2.0, on the other hand, mandates a minimum investment of 32 ether (ETH), posing a substantially higher barrier to entry for consumers.

Any Algorand network user can be picked at random and in private to propose new blocks and vote on ideas, and the possibility of that person being chosen — as well as the weight of their suggestions and votes — is proportional to their stake.

While the low minimum staking requirements in PPoS may jeopardize network security in some instances, this protocol has served Algorand successfully to date.

Proof of Importance

While traditional Proof-of-Stake (PoS) consensus mechanisms only consider the amount of capital a node has vested when determining that node’s proportional governance capabilities, Proof-of-Importance (PoI) consensus mechanisms weigh additional factors when weighing each node’s level of on-chain influence.

PoI is a variation of PoS that aims to take a more holistic approach to evaluate user contributions rather than focusing solely on capital needs. The New Economy Movement (NEM) project was the first to introduce PoI.

While the scoring criteria for PoI differ, many of these consensus processes take aspects from network clustering and page ranking algorithms.

The number of transfers a node has participated in over a period of time and the degree to which distinct nodes are interconnected via clusters of activity are both common characteristics.

Because the top token holders do not have ultimate control over the network, PoI serves to limit the risk of excessive wealth concentration. This consensus process encourages blockchain forks since users would have to spend resources to stay active on both branches ‘ networks in order to preserve their score because each node’s relevance score is dynamic and based on network activity.

Liquid Proof of Stake

Liquid Proof-of-Stake (LPoS) allows token holders to lend their validation rights to other users without having to give up ownership of their token.

While this may sound similar to DPoS, LPoS token holders choose whether to transfer their tokenized validation rights to other users or stake their own tokens. Furthermore, unlike DPoS, which has a fixed validator count, the number of active validator nodes in LPoS is dynamic.

Tezos, for example, which uses LPoS, can handle up to 80,000 validators rather than the few dozen or so that most DPoS networks allow, and Tezos’ block-building process does not include elections.

As a result, users in an LPoS network have a lot of options when it comes to network members. Large token holders, for example, can become block validators by staking their own funds without requiring external approval, and smaller token holders who lack the resources to verify blocks alone can back larger holders or establish powerful coalitions.

At the same time, because LPoS validation rights are flexible and flexibly rearranged, this approach reduces the chance of a majority coalition gaining control of the entire network.

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Proof of Validation

Proof-of-Validation (PoV) is a unique PoS consensus process that uses staked validator nodes to establish consensus. Each node in a PoV system typically stores a complete copy of the transaction sequence in blocks created on the blockchain, as well as a copy of any user accounts that can be identified by a user’s public key and any crypto tokens the node possesses.

Users can then stake their currencies in validator nodes, with the number of tokens staked in each validator determining the number of votes that validator has.

When a group of validators with at least two-thirds of the network’s total voting power submits a commit vote for a new block, it is confirmed. PoV protocols, on the other hand, maybe Byzantine fault-tolerant, in the sense that they can only stay healthy if one-third or fewer of a network’s total nodes are compromised.

The Tendermint consensus algorithm used by the Cosmos network is a form of PoV protocol.

Hybrid Proof of Stake

While most PoS protocols constitute a conscious break from PoW, certain hybrid consensus mechanisms combine features of both PoW and PoS models to fuel on-chain operations.

Most hybrid consensus systems (HPoS) rely on PoW miners to generate new blocks containing transactions, which are subsequently handed on to PoS validators, who vote on whether or not to confirm the blocks and record them to the blockchain’s ledger.

By allowing PoS participants to vote on new blocks and changes to the network’s consensus roles, HPoS protocols can help stabilize the price of the network’s native coin, and miners are less likely to attain a hash-power monopoly. HPoS protocols can provide an astonishing level of network security and stability by combining hashing power with stakeholder voting.

Dash and Decred are two well-known projects that have implemented a hybrid PoW/PoS consensus method, and Ethereum’s impending Casper update will switch the Ethereum network to an HPoS architecture.

Consensus Mechanism Change Is the Only Constant

The number of consensus mechanisms — PoS-based or otherwise — will continue to rise as blockchain developers mix and match existing protocols and invent new ways to expedite on-chain governance.

While the protocols outlined to give a comprehensive picture of Proof of Stake, in reality, today, the one constant in the blockchain world is changing.

Hundreds of blockchain projects have already incorporated some form of PoS, and this consensus mechanism category is projected to play an increasingly important role in the future of the blockchain industry by boosting network decision-making, scalability, and resource efficiency.