Numerous crypto projects are being released despite the ups and downs in the crypto industry this year. Many of these projects are proof-of-stake projects which are different from bitcoin’s proof-of-work consensus mechanism.
Since cryptocurrencies are not regulated by anyone, there is a need for verification of their transactions. A type of verification method is the proof-of-stake. It is created to correct the shortcomings of the first method of verification which is the proof-of-work.
In this article, we’ll see why the proof-of-stake projects are considered awesome today. Before then, let’s know about the proof-of-stake consensus method, and how it works.
What is Proof-of-Stake Mechanism?
Proof-of-stake (PoS) is a cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain. A consensus mechanism is a method for validating entries into a distributed database and keeping the database secure.
As against the proof-of-work mechanism where miners use computational machines to add new blocks of BTC, validators (in this case) stake their coins. This gives the validators the right to check new blocks of transactions and add them to the blockchain.
Proof-of-stake (POS) is seen as less risky in terms of the potential for an attack on the network, as it structures compensation in a way that makes an attack less advantageous.
How does Proof-of-Stake Work?
In the proof-of-stake model, cryptocurrency owners are allowed to stake coins and create their validator nodes. Those who create this node are referred to as ”validators”.
Staking means giving out your crypto coins for validations to earn rewards. When you stake, your coins are locked up while you stake them, but you can unstake them if you want to trade them.
When a block of transactions is ready to be processed, the cryptocurrency’s proof-of-stake protocol will choose a validator node to review the block. The validator checks if the transactions in the block are accurate.
If found accurate, they add the block to the blockchain and receive crypto rewards for their contribution. However, if a validator proposes adding a block with inaccurate information, they lose some of their staked holdings as a penalty.
For example, an Algorand holder can stake it and set up their validator node. When ALGO needs to verify blocks of transactions, the project’s protocol selects a validator. The validator checks the block, adds it, and receives more ALGO for their part.
Top 5 Crypto Projects that Use Proof-of-Stake Mechanism
Ethereum’s (ETH) Goerli test net completed its merge with the PoS consensus mechanism in the early hours of August 11. This is one of the ETH steps in moving from a PoW mechanism to PoS. Several other crypto assets use the PoS model. The top projects are discussed below.
1. Binance Coin (BNB)
BNB Coin is a cryptocurrency that is used primarily to pay transaction and trading fees on the Binance exchange. It is ranked 5th among thousands of cryptocurrencies today by CoinMarketCap.
To validate transactions and govern its network, BNB Chain uses a unique consensus mechanism called proof of staked authority. This combines aspects of the popular proof-of-stake system with the less common proof-of-authority system.
2. Cardano (ADA)
Cardano is a public blockchain platform. It is open-source and decentralized, with consensus achieved using proof of stake. It can facilitate peer-to-peer transactions with its internal cryptocurrency, ADA.
Cardano verifies blocks of transactions by using its Ouroboros protocol which selects validators. ADA, the native token of the project is ranked 8th among other crypto assets today as of writing.
3. Solana (SOL)
Solana is a highly functional open-source project that implements a new, permissionless, and high-speed layer-1 blockchain. Solana implements an innovative hybrid consensus model that combines a unique proof-of-history (PoH) algorithm with the lightning-fast synchronization engine, which is a version of proof-of-stake (PoS).
The Solana network can theoretically process over 710,000 transactions per second (TPS) without any scaling solutions needed. Today, SOL is ranked 9th among other crypto assets.
4. Polkadot (DOT)
Polkadot is an open-source blockchain platform and cryptocurrency. It provides interconnectivity and interoperability between blockchains, by enabling independent chains to securely exchange messages and perform transactions with each other without a trusted third party.
The network uses a proof-of-stake consensus algorithm. The native token, DOT, is ranked 11th among thousands of cryptocurrencies today.
5. Algorand (ALGO)
Algorand is a proof-of-stake blockchain cryptocurrency protocol. Algorand’s native cryptocurrency is called ALGO and it is ranked 30th among thousands of cryptocurrencies as of writing. Many projects are also built on the network.
Why Proof-of-Stake Crypto Projects Are Considered Awesome in 2022
Crypto projects including the popular bitcoin have been under scrutiny in the year so far. This is because the crypto market has been bearish for most of the year. Terra’s collapse, inflation, and other issues have been attributed to this.
These developments have made many questions about the future of cryptocurrency. One of the topics raised is the effect of bitcoin mining on the climate. However, this cannot be said about PoS crypto projects.
One of the reasons PoS projects have been considered is that they are energy-efficient. The PoS mechanism seeks to solve energy problems by effectively substituting staking for computational power, whereby an individual’s mining ability is randomized by the network. This means there should be a drastic reduction in energy consumption since miners can no longer rely on massive farms of single-purpose hardware to gain an advantage.
Another reason is that PoS provides fast * inexpensive transaction processing. For example, The Solana network can theoretically process over 710,000 transactions per second (TPS) with little or no cost.
The Pos also doesn’t require special equipment to participate in mining as it is with PoW. Participants only buy coins or tokens to become a validator. The validators receive transaction fees as rewards at the end of the process.
Many projects are still building on the existing blockchains that use the proof-of-stake mechanism for its advantages. However, the PoS is not without its disadvantages. This includes security issues, and unregulated control, among other issues.
The proof-of-stake mechanism, which is an alternative to the proof-of-work mechanism is much considered today. The mechanism features some great advantages that make it a suitable alternative to the PoW system. Due to the needs of the current crypto space and the environment, the Proof of Stake mechanism is here to stay.