Deciphering Leased Proof-of-Stake: A Closer Look at Blockchain Consensus Mechanisms
Summary:
This article provides an in-depth explanation of the leased proof-of-stake (LPoS) mechanism, a variant of the proof-of-stake (PoS) system used in cryptocurrency transactions validation in a blockchain network. Examining how LPoS works, from the creation of a lease transaction to rewards distribution, the article addresses key features of LPoS, such as decentralization, balance leasing, fixed tokens, and scalability. The piece also discusses the use of LPoS in blockchain validation, various benefits it offers, and alternatives to LPoS that utilize PoS, giving a holistic view of this blockchain consensus mechanism.
Decoding Leased Proof-of-Stake
Leased proof-of-stake (LPoS) is an alternative proof-of-stake (PoS) mechanism aimed at enhancing mining power while addressing shortcomings of proof-of-work (PoW) and fine-tuning elements of other PoS types, including delegated proof-of-stake (DPoS). If you're a seasoned crypto user, you're likely familiar with PoS; however, you may wonder about the link between PoS and LPoS.
They are interrelated, with LPoS being a subtype of the PoS system. Proof-of-stake is part of the blockchain consensus mechanism where validators use staking to create and confirm transaction blocks. To boost their chances of generating blocks, validators on PoS platforms often need to stake more cryptocurrency, and this is where LPoS becomes invaluable.
Investors, who lack the technical knowledge or funds, can lease their tokens to node operators. This strategy strengthens the chances of validators getting selected to produce new blocks, letting them share in the transaction fee paid to the validator. In an LPoS setup, investors can either lease their stake or operate a full node. But the more tokens a node stakes, the higher its chances of getting picked to generate a new block. LPoS provides users the opportunity to gain mining profits without engaging in the process directly.
Deciphering the Mechanism of LPoS
Similar to a lottery, higher stakes in LPoS increase the likelihood of yield rewards. The LPoS system follows a sequence of fixed procedures:
1. Lease transaction creation: Investors lease coins to a node, specifying the quantity and the recipient address. Leases can be revoked anytime.
2. Awaiting block generation: The leased funds join a node’s pool, enhancing the odds of winning the subsequent block lottery.
3. Participating in the consensus: LPoS allows investors to join the consensus process; nodes with more stakes have a higher chance of creating the upcoming block.
4. Blocks generation: Winning nodes verify transactions, compile them into blocks, and receive transaction fees as rewards.
5. Reward distribution: Node coordinators distribute rewards to investors based on their investment, with higher stakes resulting in more substantial rewards.
It's crucial to mention that, even when leased, tokens remain in the investor's hardware wallet and under their complete control. The investor links the chosen nodes without transferring the tokens. No parties can trade or relocate the tokens, including the holder, who can only spend the allocated coins after canceling the lease.
Understanding Key Features of LPoS
LPoS is characterized by decentralization, balance leasing, fixed tokens, and scalability among others. The salient features include:
1. Balance leasing: While leased, tokens do not change hands, nor can they be traded. Users can lease out tokens and finances from cold storage or wallets.
2. Decentralization: LPoS divides rewards according to the staked amount, eliminating the need for a mining pool. Besides, it's suitable for blockchain governance as it uses a peer-to-peer protocol to avoid third-party intervention.
3. Unpredictable block generation: One cannot predict who will gain the right to generate the subsequent block. However, nodes with larger economic stakes have a higher likelihood of winning this right.
4. Fixed tokens: Mining does not add more tokens to LPoS, as the system only permits token leasing.
5. Scalability: High-on-chain scalability supersede second-tier apps for LPoS developers.
6. Rewards: While other blockchain systems award block token rewards, LPoS gives transaction fees to reward successful node operators.
The Place of LPoS in Blockchain Validation
LPoS, a PoS variant, is used to validate cryptocurrency transactions in a blockchain network. LPoS employs nodes or network devices to authenticate and approve blockchain transactions. Node-based validation uses a random computational algorithm that depends on a node's financial stake to assign blockchain transaction validation rights.
The best-fit node to validate transactions at any given time is determined by a PoS consensus algorithm using these factors:
1. Age of tokens: The longer the staked tokens remain idle on the LPoS platform, the higher the chances of being chosen for the next transaction validation. As soon as the stake confirms LPoS transactions, its age resets to zero.
2. Size of stake: The bulkier the stake, the higher the chances of validation selection.
Unlike PoW systems that use raw computational power in mining hardware, PoS uses passive cryptocurrency deposits, making it more resource-efficient than PoW.
Currently, two major blockchains use LPoS. The first, Waves blockchain, allows users to lease tokens to nodes and receive rewards distributed by these nodes using the LPoS consensus algorithm to verify the blockchain’s state. Secondly, Nix uses a permissionless staking mechanism that enables users to stake via a separate third-party wallet, which is responsible for the staking.
Exploring the Benefits of LPoS
LPoS provides numerous benefits from earning rewards without active trading and augmenting chances of receiving rewards by joining a larger node, to having inherent security features of the LPoS process. The potential advantages of LPoS include:
1. Passive investment: Users can participate in block generation and earn some rewards without directly engaging in the block generation process.
2. Inclusion of smaller investors: LPoS protocols have a minimum investment requirement for network involvement. However, those with less than the minimum can lease cryptocurrency tokens to larger nodes for an opportunity at earning rewards.
3. Difficult to manipulate: Attempts to manipulate by moving funds between accounts are thwarted by the LPoS rule of generating balance, which calculates the least balance after considering leasing in the recent 1,000 blocks.
4. Increased chance of winning rewards: By leasing tokens to a larger node, one stands a better chance at earning rewards than by going alone.
5. Maintained ownership: As leased tokens don’t leave the wallet nor can they be traded or transferred, the chance of loss is minimized.
6. Low entry level: There's no need for mining hardware to participate in validation.
Alternatives to LPoS in Crypto Mining
DPoS, pure proof-of-stake, and proof-of-validation are among alternatives to LPoS that utilize PoS. Though not technically a method to mine cryptocurrencies, PoS enables users to validate transactions and create new blocks on a blockchain, with LPoS further allowing users to lease crypto tokens to nodes that validate LPoS transactions. They include:
1. Delegated proof-of-stake (DPoS): Users delegate the creation of new blocks to delegates or witnesses through a democratic voting system, weighted by the number of tokens held on a platform.
2. Pure proof-of-stake (PPoS): Used mostly by the Algorand blockchain for developing decentralized applications (DApps), users vote to select representatives who vote on proposals and suggest new blocks.
3. Proof-of-validation (PoV): Aspires to achieve consensus via staked validator nodes. The number of tokens stacked with each validator determines their voting numbers. If a validator, with a minimum two-thirds of the network's total vote, votes on a block, the new block is validated.
4. Hybrid proof-of-stake (HPoS): Some LPoS protocols leverage the power of PoS and PoW. They use PoW to create new blocks for transactions and use PoS to validate the blocks.
Published At
9/30/2023 11:10:00 AM
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