Introduction to Blockchain Technology. Tiana Laurence

transactions honestly and by the rules of the consensus system. If the user fails to do so, they will forfeit their cryptocurrency. It is becoming popular in public blockchain networks as it is a low-cost alternative that supports greater decentralization.

      Proof of Stake allows anyone to participate at any level in the creation and maintenance of the network. The one catch is that a node operator must have the minimum amount of cryptocurrency needed to stake. If they do, they can process transactions for the network. The node’s probability of securing the next block and being rewarded for doing so is equivalent to the percentage of cryptocurrency they stake.

      In the event that there are two or more competing blocks (known as a fork) in the Proof of Stake algorithm, you can stake your cryptocurrency on both blocks without consequence. This is called the “nothing-at-stake” problem. It is important to note that in a Proof of Work system it is not economically viable to mine on both chains. But in PoS, there is little cost involved in working on several chains and an economic incentive to do so. There are open questions regarding what rules would be applied across PoS environments when situations arise where a staker is nefarious from start. See figure 16.

      Pros:

      ■ It is energy efficient and does not burn electricity when mining;

      ■ It can be more expensive to attack than PoW - hackers need to purchase a large percentage of the native cryptocurrency;

      ■ It scales easily to handle transaction load and size.

      Cons:

      ■ Rewards are weighted to those who stake their cryptocurrency the longest. The longer a miner stakes, the greater the reward. The network structure allows wealthy stakers to control more of the network and this may cause centralization and censorship.

      PoS is used by Ethereum, Peercoin and Nxt.

      Figure 16 Proof of Stake.

3.3 Delegated Proof of Stake

      The competition to be a validator happens outside of consensus. Those with better websites and social media accounts, at this point, are selected. Delegated Proof of Stake (DPoS) is a collaborative effort, and nodes that are validating transactions are rewarded equally in this consensus system.

      As a stakeholder you elect “witnesses” who will validate transactions and create blocks for the network. EOS, one of the most popular DPoS blockchains, only has 21 witnesses.

      Each of the EOS witnesses are paid fees for producing blocks, and the fee is set by the stakeholders.

      The witness nodes produce blocks one at a time in a round-robin fashion, or by random selection. Witnesses can’t publish consecutive blocks or execute double-spending attacks where they allow cryptocurrency to be sent twice or more from the same address without updating the ownership. This would be the equivalent to writing checks from an empty bank account that you don’t own. The person you wrote the check to believes they have been paid, but once the check is processed by the bank, it is rejected, and they learn that they have been defrauded.