A peer-to-peer cryptocurrency called Peercoin (PPC) is the first cryptocurrency to use PoS. An open-source cryptocurrency and payment network called NXT (NXT) and another peer-to-peer cryptocurrency called Blackcoin (BLK) also use Proof-of-Stake (PoS). Energy efficiency and security are the advantages of PoS.
How Does PoS Work?
Every validator has some stakes in a PoS network. If they want to be selected, then they will have to lock up their deposits.
- If a person has a particular cryptocurrency, then he will be able to become a validator
- The chance of mining a new block depends upon the amount of the cryptocurrency the person has. If the person has 3% of the cryptocurrency, then he will be able to mine only 3% of a block.
- The right for the creation of a block will be assigned randomly in between selected validators based upon the value of their stakes
- Either a part or the whole of the transaction fee will be rewarded to the chosen validator.
The main purpose of creating Proof-of-Stake (PoS) was to tackle inherent issues in PoW.
- Computing power is required immensely to mine cryptocurrency.
- Most miners sell their rewards for fiat money with the purpose to pay their electricity bill.
- This thing results in the falling price of a cryptocurrency.
More issues in PoW:
- PoW is used By Bitcoin.
- The Bitcoin network can face Tragedy of the commons. A situation will occur where Little or no block rewards can reduce Bitcoin miners.
- Transaction fees will be a way to earn something in this network. Users like to pay lower fees for their transactions and this can reduce the transaction fees.
- This network will be more vulnerable due to a few Bitcoin miners. If a miner or mining pool controls 51% of the computational power of this network, then a fraudulent block will be created.
If a miner obtains 51% of a particular cryptocurrency, then a 51% attack will be carried out in a PoS network. Obtaining 51% of a reputable cryptocurrency is not only difficult, but it is expensive also. A miner with 51% of a particular cryptocurrency can show the least interest to attack a network since he has already a majority stake. A majority stake owner will try to maintain a secure network because the falling value of a cryptocurrency leads to the falling value of his holding.