Proof of Stake

Proof of Stake is a proposed alternative to Proof of Work. Proof of Stake was first introduced by Sunny King in the cryptocurrency Peercoin (PPC) back in 2012.

A peer-to-peer crypto-currency design derived from Satoshi Nakamoto’s Bitcoin. Proof-of-stake replaces proof-of-work to provide most of the network security. Under this hybrid design proof-of-work mainly provides initial minting and is largely non-essential in the long run. Security level of the network is not dependent on energy consumption in the long term thus providing an energy- efficient and more cost-competitive peer-to-peer crypto-currency. Proof-of-stake is based on coin age and generated by each node via a hashing scheme bearing similarity to Bitcoin’s but over limited search space. Block chain history and transaction settlement are further protected by a centrally broadcasted checkpoint mechanism.

Proof-of-Stake

Proof-of-work helped to give birth to Nakamoto’s major breakthrough, however the nature of proof-of-work means that the crypto-currency is dependent on energy consumption, thus introducing significant cost overhead in the operation of such networks, which is borne by the users via a combination of inflation and transaction fees. As the mint rate slows in Bitcoin network, eventually it could put pressure on raising transaction fees to sustain a preferred level of security. One naturally asks whether we must maintain energy consumption in order to have a decentralized crypto-currency? Thus it is an important milestone both theoretically and technologically, to demonstrate that the security of peer-to-peer crypto-currencies does not have to depend on energy consumption.

A concept termed proof-of-stake was discussed among Bitcoin circles as early as 2011. Roughly speaking, proof-of-stake means a form of proof of ownership of the currency. Coin age consumed by a transaction can be considered a form of proof-of-stake. We independently discovered the concept of proof-of-stake and the concept of coin age in October 2011, whereby we realized that proof-of-stake can indeed replace most proof-of- work’s functions with careful redesign of Bitcoin’s minting and security model. This is mainly because, similar to proof-of-work, proof-of-stake cannot be easily forged. Of course, this is one of the critical requirements of monetary systems – difficulty to counterfeit. Philosophically speaking, money is a form of ‘proof-of-work’ in the past thus should be able to substitute proof-of-work all by itself.

Source: https://www.peercoin.net/assets/paper/peercoin-paper.pdf

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