Proof-of-Stake (PoS) is one of the most common consensus algorithms that have gained popularity as an alternative for the PoW algorithm. It has evolved as a low-cost and low-energy consensus mechanism. In this consensus mechanism, responsibilities for managing the ledger are distributed among the nodes in proportion to the number of tokens staked by them.
Transition to PoS
While scalability and transition throughput is improved in PoS, in comparison to PoW it is less secured.
In PoS, a staker who has staked a large number of coins and for a longer duration of time is likely to get a high number of transactions for validation. A staker willfully can validate wrong transactions.
However, the demand-supply equation of a free market economy protects against this threat. As a rogue staker will be required to first buy a large number of coins before staking them. This extensive buying from the stalker will push the prices of the crypto coin higher, making it cost-prohibitive for the rogue staker.
The project team at Ethereum is working to transit from PoW algorithm to PoS algorithm and to make this transition effective the Ethereum project team has developed a solution. A new protocol has been developed by the Ethereum project team for this transition, which is named ‘Casper’.
In Casper, a staker will be required to put some coins in a security deposit, meaning that the staker will be required to deposit a minimum amount so that he could be considered for transaction validation. This security deposit will keep a check on the staker., and any manipulative behavior from the staker will result in forfeiting the deposit. The staker could also be banned permanently.
Which is The Future: PoW or PoS?
While PoW is a more secure consensus mechanism, it is also having a huge impact on scalability and transaction throughput. Centralized companies have been controlling the mining process in PoW and the cost of energy required is not sustainable.
In the PoS consensus mechanism, the security provided is less, but the stakers have put their cryptocurrencies at stake, thus making security adequate. The network offers higher transition throughput and scalability.
A lot is riding on the successful transition of Ethereum to the PoS algorithm. If a network like Ethereum could switch successfully to PoS and could continue to deliver the same security to the network like before, with Casper protocol, it will give confidence to the larger blockchain community about the strength of the PoS algorithm.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.
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