It’s rapidly becoming the most important distinction and paradigm shift in blockchain and crypto history, and it never hurts to repeat it: Proof-of-Stake mechanisms are the new norm.
Functioning as a sort of security deposit, the amount of tokens staked in each network by their owner influences the likelihood of their direct involvement in validating blocks – a process for which individual stakers are chosen pseudo-randomly.
The security and continuity of each digital ledger supported by this form of consensus are guaranteed thus not by computational power but via a peer-to-peer monitoring system which consumes barely any electricity compared to a mining outfit.
It’s clearly a marked technological and environmental improvement on the traditional Proof-of-Work consensus mechanism upon which Bitcoin and most other culturally relevant blockchain products have relied for the past decade, and thus have been hailed as one of the many important keystones to mainstream blockchain permeation.
PoS consensus shifts the responsibility of validating and maintaining networks from a few hardware-rich and energy-intensive mining consortiums and places it back in the hands of a community.
It’s not an idealistic proposition or a free-for-all blockchain anarchist dynamic, though. There is a very clear (and thus far successful) system of staking rewards and air-drops that incentivise the accumulation of tokens in the manner needed to support validating actions, and there are harsh slashing penalties imposed to any participant found to be in any way a bad actor.
Supporting Decentralization Through Staking
We’ve hinted at it while discussing the changes brought upon the world of validation by the introduction of staking, and we’ll expand on it now: PoS consensus is inherently a more independent, less centralized protocol to implement.
Firstly, it eliminates the risk of a network attack via a single point of failure. The presence of mining pools (conglomerates of miners with relatively small mining power) of increasing size in Proof of Work environments has often led to entire networks being governed by a handful of entities. Worryingly, this is arguably an even worse solution than fiat currencies, since those entities are often private and have almost no incentive to act in the interest of the common good rather than focus on their own interests.
In a staking environment, there is no need to commercially and technically congregate with other validators – thus increasing the number of independent, loose actors that influence the network.
The reason for this is that PoS mechanisms have a much more accessible level of entry. As validating on PoS networks doesn’t require expensive hardware or commercial-sized energy bill coverage, all that’s required to become a validator is a one-off injection of token capital, one of a relatively much smaller dollar value than what would be required to set oneself up as, for instance, a Bitcoin miner.
Furthermore, PoS chains are a more modern response to the Satoshi ideals of economic self-governance. More often than not, they natively incorporate governance and decision-making protocols which allow all stakeholders to participate in shaping the future economic and ideological principles of the network – ensuring its purpose or significance aren’t compromised by a lone bad actor or an investor with private interests in mind.
Finally (and this is more of a consequence of a fully decentralized system than one of its premises), all PoS ledgers are attack resistance. The slashing mechanism mentioned above acts as a strong deterrent towards any type of malicious activity.
Supporting The Validating Feedback Loop
PoS thus creates a sort of validation feedback loop: the consensus mechanism grows stronger and stronger for each additional validator, while simultaneously decreasing the barrier of entry for future ones.
In turn, the increasing numbers promote a wider geographical, technical and economic distribution – ensuring all types of blockchain users are reflected in the governance, and the singular points of failure are reduced further and further as the network grows.
Staking coins and tokens on the networks we find useful and which we believe have a space in the future blockchain industry is therefore not just an activity that should be performed out of greed or desire to attain a passive income stream.
In Proof-of-Stake networks, validating can also be seen as a political and altruistic act of support for the network and its participants, as well as an active participation in building the technical framework of a groundbreaking new technology.
And just about every user out there can take up this position, without economic or hardware hurdles to climb, and without any type of oversized environmental footprint and the likely criticism to follow.
So, get out there and stake! Some not-so-distant day in the future you might be able to say you were one of the pioneers that shaped the next wave of secure, decentralized and successful blockchain networks.
Disclaimer: Do Your Own Research
While all the positives above relate to the world of PoS chains as a whole, without many distinctions, there are massive differences between each coin and token out there and they should be considered on ad-hoc basis and tailored to your own personal investment interests, capital available and risk appetite.
Please do not take the above as financial or investment advice, and remember at all times that cryptocurrencies and blockchain tokens are highly volatile and speculative assets with significant risk levels.
Ensure you do your own research (DYOR) and consider all relevant factors carefully.
