1. Proof of Stake (PoS)
Proof of stake sits at the center of all the mechanisms. The original proof of stake mechanism, developed in 2012, uses individuals known as validators to create and verify blocks of transactions through a process known as staking. Staking involves locking up a certain amount of crypto for a certain amount of time, and validators must do this to play a role in block verification.
For example, to become an Ethereum validator, you must deposit and lock up at least 32 ETH. Though this is already a high number, many choose to stake even more to increase their chances of verifying a block and earning a reward.
Proof of stake has become popular in recent years for a number of reasons, the most prominent being its energy efficiency. Proof of stake’s increased energy efficiency allows it to function at a lower cost than proof of work while having less of an impact on the environment. The lower operational cost of the proof of stake mechanism can also lead to lower transaction fees.
Today, many blockchains are switching to proof of stake because of these advantages. For example, Ethereum is at the cusp of switching to proof of stake, while Dogecoin is currently also considering making the transition.
2. Pure Proof of Stake (PPoS)
The pure proof of stake mechanism involves randomly selecting users to verify blocks via a “selection seed” in each block. These users are chosen in secret, and the chance of a user being chosen is directly proportional to the amount of crypto they choose to stake. This mechanism does not allow users to exploit the system by splitting their stake across multiple accounts. The only way any given user can increase their chances of being selected for validation is by increasing their amount of staked crypto.
Algorand is a popular blockchain that uses the pure proof of stake mechanism. All Algorand users with their own ALGO funds have the chance of being selected for block verification.
3. Delegated Proof of Stake (DPoS)
Delegated proof of stake involves electing, or delegating, validators based on the votes of stakeholders. On any given DPoS blockchain, a stakeholder can pass their funds onto a third-party validator, who will use said funds to increase the chances of verifying or creating a new block.
This means that, regardless of how much crypto you’ve staked or the quality of your hardware, you can only become a validator if you are voted for. You must also provide a proposal as to why you’d make a dependable validator. This increases the chance of validators having benign, beneficial intentions for the blockchain and its security.
Stakeholders will vote for the validator they have the most faith in, as this validator is more likely to process a block and earn a reward, which is then shared with those who voted for them. The more crypto a stakeholder puts down, the more voting power they have.
Several popular blockchains use delegated proof of stake, including EOS and Steem.
4. Hybrid Proof of Stake (HPoS)
Hybrid proof of stake, also known as hybrid proof of stake/proof of work, is a mechanism that combines the key benefits of both separate mechanisms. You might be wondering how you could possibly combine two mechanisms that have so many differences, but it certainly can be and has been done. So, how does it work?
Hybrid PoS/PoW mechanisms use miners, as you’d find in the classic PoW mechanism. But these miners will only create new blocks. After this, validators will verify and vote on the new blocks. The core purpose of merging PoW and PoS is to prevent miners from harboring all the hash power within a network, making the verification process fairer for all users.
5. Proof of Validation (PoV)
You could consider proof of validation a more airtight version of proof of stake. This is because, in a PoV system, every validator on the network has a complete copy of every transaction that has taken place. On top of this, each validator has a list of every user on the network, all of which are identified via their public key address.
The PoV mechanism also requires two-thirds of a system’s total validators to come to a consensus on a block for it to be confirmed. This ensures that the majority of the network believes each block is valid. However, because not every node is required to sign off on each new block, cybercriminals have a greater chance of controlling the network, as they don’t need to take over its entirety to achieve validating power.
6. Proof of Importance (PoI)
The key difference between traditional proof of stake and proof of importance is that the proof of importance mechanism considers additional factors when determining if a block is valid. The developers of the NEM cryptocurrency created this mechanism to tackle some of the pitfalls of the proof of stake protocol.
The proof of importance mechanism also doesn’t require highly specialized, energy-intensive hardware for the validation process, meaning it is also relatively eco-friendly. It also gives more fairness and control to your average token holder over those who own high-end mining rigs or farms.
7. Leased Proof of Stake (LPoS)
Leased proof of stake is similar to delegated proof of stake in some ways, but the two are not one and the same. Leased proof of stake involves crypto holders leasing some of their funds to nodes to verify blocks on their behalf. This means that, unlike delegated proof of stake, no validators are voted for in a leased proof of stake network. This gives regular token owners without huge holdings the opportunity to contribute to the consensus mechanism of a given blockchain.
Stakeholders can also withdraw their lease from any node whenever desired. This consensus mechanism is currently used by the WAVES blockchain, which launched in 2017. Validators (or forgers) within this network do not receive typical validation rewards and are paid in transaction fees instead.
8. Liquid Proof of Stake (LPoS)
Liquid proof of stake is another kind of consensus mechanism that involves stakeholders entrusting others with their funds. Again, this may sound similar to delegated or leased proof of stake, but the key difference is that a liquid-proof of stake system allows stakeholders to choose whether they want to hand their staking responsibilities over to another node or stake their funds on their own.
Liquid proof of stake is most notably used by Tezos, wherein the mining process is known as “baking,” and the “bakers” take care of creating and confirming new blocks. This blockchain gives anyone the chance to become a validator, which levels the playing field and stops large fund holders from monopolizing the network. However, those with larger staked amounts have a higher chance of being selected to confirm a block.
The Proof of Stake Mechanism Is Diverse
While the original proof of stake mechanism is currently the most popular out of the variations discussed above, there’s no denying that making modifications to the initial algorithm has its perks, be it less energy usage, increased fairness to all stakeholders, or the promotion of more committed and well-intentioned validators. We may see more and more variations of the proof of stake mechanism launched over the next few years, one of which may become the go-to for blockchain and crypto developers.
