Proof-of-Stake
An explanation of the Proof-of-Stake consensus protocol, its origins, how validators stake coins to verify transactions, its pros and cons, and its use with NFTs.
Proof-of-Stake is a consensus protocol that can be used to verify and add transactions to a blockchain. The Proof-of-Stake protocol is derivative of the Proof-of-Work consensus protocol, but relies on a different structure than the distributed ledger system.
Where did PoS come from?
The first successful use case of Proof-of-Stake occurred in 2012 on the project Peercoin. Since then, several other projects have either copied or created their own version of Proof-of-Stake (with the same underlying principles).
To name a few, Cardano, Algorand, Polkadot, and Solana have all used Proof-of-Stake systems to manage and verify blockchain transactions.
Ethereum users believe that Ethereum may one day operate on a Proof-of-Stake system. The system would require validators to verify portions of a “shard”, and when enough shards are validated by enough machines they would then be added to the blockchain.
How does it work?
Proof-of-Stake, first and foremost, starts with those who own enough of an underlying cryptocurrency to meet governance requirements using mining machines. These owners stake their coins as collateral as an incentive to do good by the blockchain. Once a stakeholder is determined, their mining machines are used as an example of how to verify transactions on the rest of the blockchain.
Just like with Proof-of-Work, the validators are randomly selected when the time comes to mine and validate a block. The idea of randomizing the blockchain mining system is to remove the competition so miners aren’t incentivized to act maliciously against the blockchain or in their own favor.
But along the same lines as PoW, again, PoS requires multiple validators to instantiate and verify transactions. After the entire group of validators has verified the block it is published to the blockchain.
Pros and Cons
Proof-of-Stake is often referred to as the green or environmentally responsible alternative to Proof-of-Work. These sorts of systems do require orders of magnitude less energy than Proof-of-Work systems. For example, Polygon’s validators consume about [0.00079TWh/year](https://blog.polygon.technology/polygon-the-eco-friendly-blockchain-scaling-ethereum-bbdd52201ad/) while continuously drawing about 0.00009GW, while Ethereum’s network consumes roughly [44.5TWh/year](https://www.makeuseof.com/bitcoin-vs-ethereum-which-uses-most-power/).
Also, Proof-of-Stake generally has high throughput, meaning a high number of transactions can be verified at any given time. While Proof-of-Stake is designed to turn out transactions at a much higher rate, the security of the system also takes a hit.
Because the PoS system is shared amongst stakers, a 51% attack is more feasible than a 51% attack on a PoW system. This sort of attack could be done to change or distort a block in the blockchain, but doing so should result in a full loss of coins on the behalf of the attacker. Also, PoS systems often rely on secondary forms of security in the unlikely event of a 51% attack.
Depending on where one stands with financial autonomy and governance, Proof-of-Stake centralization and reliance on a concentrated group of individuals governance powers can be a pro or a con. For those that prefer maximizing verification systems that are incentivized to serve the individual’s property rights and autonomy, Proof-of-Stake is not the most reliable choice. For those that prefer hands-on regulation and don’t mind a small group holding governance capabilities, Proof-of-Stake is the only option.
PoS with NFTs
Proof-of-Stake can be used to mint NFTs, and is regularly used to do so. Polygon and the Binance Smart Chain are two prominent Proof-of-Stake networks that are commonly used by NFT enthusiasts.
One of the most popular NFT marketplaces, the NBA Top Shot, operates on the Flow network which uses a Proof-of-Stake protocol. But eventually, Ethereum may even switch over to Proof-of-Stake at which point, all of the 80-90% NFTs that are minted may also be sent through the Ethereum PoS sharding system.
Does Fayre use PoS?
Two of Fayre’s NFT minting and trading networks rely on Proof-of-Stake, that is, Polygon and BSC (Binance Smart Chain). The Proof-of-Stake system allows for low to zero transaction fees, and can be much faster than Proof-of-Work. For these reasons Polygon and BSC were chosen by Fayre in an effort to make NFTs accessible to everyone.
Staking the $FAYRE Token is also an option on Fayre (this is not a Proof-of-Stake system per se) that allows for governance options in the Fayre ecosystem.