update 18 October 2021

5 Unique Features of Proof-of-Stake Crypto Projects

Ironically, decentralization, one of crypto assets’ vital features, is a potential Achilles heel too. Eliminating third parties from transactions enables peer-to-peer exchanges. However, the absence of a third party also creates loopholes for double-spending by mischievous parties. It’s for this reason that networks agree on specific consensus mechanisms. They are the rules and procedures that all devices in a network follow in confirming that certain blockchain transactions are correct. They also help in protecting the network against malicious activities, thereby preserving its integrity. 

Today, projects can choose to adopt any one of the many crypto verification protocols available to them. One that’s gaining popularity is the Proof-of-Stake consensus protocol (PoS). It developed from the need to address the shortcomings of the Proof-of-Work protocol (PoW), the premier consensus mechanism. It has many unique features that have undoubtedly raised its appeal, and in this article, we take a look at five of them. Before that, though, it’s essential to understand what PoS is first.

What’s a Proof-of-Stake Consensus Protocol?

Proof-of-Stake is a blockchain consensus mechanism where networks allocate the right to verify transactions based on the amount of tokens one stakes. The tokens act as a guarantee that you, the validator, have good intentions towards the project. You cannot access the stake until all transactions go through.

Earning the right to verify a block requires you to show that you hold some quantity of the crypto concerned. It’s akin to putting up a deposit indicating your goodwill towards the project. 

The quantity of tokens that you stake determines the capacity you’ll have to verify the transactions. For instance, if you hold 10% of the crypto, you can only verify 10% of your transactions. Once the transactions go through, each validator earns transaction fees and gets their stake back.

What are the Unique Features of PoS Crypto Projects?

As indicated in the opening paragraph, crypto projects are increasingly adopting the PoS consensus protocol. The question is, why is that so? To answer this question, we shall now shift our attention to five unique features of the PoS crypto projects.

  • Validation Replaces Mining

While the PoW projects depend on coin mining to verify transactions, the PoS ones mint or forge coins. Mining involves the solution of complex mathematical equations using specialized machinery. However, in a PoS system, the network randomly selects the person to produce the next block. To become validators, users stake their tokens, locking them for a while.

The system considers several factors when deciding on who gets to validate the next block. Notably, the highest stake has the best chance of doing so. However, it may also consider the duration that one has staked their coins. Once selected, the validator checks that all the transactions are valid; they sign on the block and add it to the blockchain. They then receive the transaction fees.

  • Low Entry

Another distinguishing feature of PoS systems is that they’ve low entry requirements. We’ve already shown that, unlike in the PoW systems, here, you wouldn’t need to invest in mining equipment to verify transactions. Instead, your stake is your ticket to participating in the validation process. 

Mining equipment is costly, and this fact could discourage many from participating in it. On the other hand, its elimination in the PoS systems enables anyone holding the crypto to join the verification process. Besides the stake, you’ll only need your ordinary PC/laptop, a fairly decent smartphone, or a tablet.

  • Passive Income

One advantage that PoS systems have over others is that they allow you to earn passive income. Just like mining rewards your effort with a certain amount of cryptos, so does staking. 

Staking shows your confidence in the project. Also, the fact that you’re not trading reduces its circulating volume, which in turn raises the token’s value. So the project will pay you for holding it. So you earn income without breaking a sweat.

  • Majority Holders Protect the System

The worthiness of a crypto project is determined by how robust it is to withstand attacks. One attack that concerns them is the 51% attack. It is a situation where the majority of the nodes collude to attack their network with malicious intent.

In the PoW setup, nodes control 51% or more of the mining power raiding the network. The PoS projects involve controlling a similar amount of the total coins/tokens in that network’s supply.

Besides this being unfeasible, the projects have in-built checks to deter majority holders from launching these attacks. First, it locks their stake for a while, even after the verification of blocks. Second, their tokens/cryptos act as a guarantee for their honest engagement.

Also, validators Pay for Wrongdoing. Secondly, the majority of holders suffer the most if fraudulent activities occur during the validation of transactions. It’s because the system penalizes the validators for any wrongdoing. Since they hold the majority stake in the project, instigating an attack is inducing self-harm. 

Again, PoS encourages Decentralization of the nodes. As such, it increased the distribution of validating rights, preventing the possibility of such an attack from taking place.

  • Validators take the Transaction Fees.

In contrast to PoW systems, where miners get rewards in mined coins, PoS validators earn rewards from transaction fees. The significance is that the verification doesn’t create new coins, which helps control a given coin/token’s supply.

Final Thoughts

A consensus mechanism is central to the sustenance of crypto projects. In addition to helping the system guard against double-spending, it helps secure it from attacks. Today more and more projects are opting for the Proof-of-Stake consensus protocol. It’s an improvement on the Proof-of-Work consensus and has unique features that make it an attractive option. 

price change

Besides eliminating the need for miners, they are better proof against a 51% attack. Moreover, the PoS projects offer passive income through staking and are affordable for first-time investors. So for them, the future remains promising.

More posts

Earliest Cryptocurrencies with DeFi-like Characteristics

A recent Chainalysis report shows how Europe accounts for 25% of the world's cryptocurrency transactions. The news came as a surprise to many. However, Decentralized Finance (DeFi) is the center of these crypto transactions. So, it takes about 50% of the total amount from the region's trades. DeFi is an innovative niche that many enthusiasts still have not explored fully. Nevertheless, numerous smaller crypto assets with similar characteristics to DeFi tokens already exist. Binance Chain, PancakeSwap, and Uniswap are examples…

Which Altcoins Made The News in H1 of 2021

Altcoins are constantly jostling to make a mark in the crypto world. After Bitcoin and Ethereum, the race to be the third cryptocurrency force keeps heating up every year. Many strong contenders with different use cases promise more than what the big two currently offer. As a result, many are making their mark in a big way, for good and not so good reasons, as long as they stand out from meme coins that ride the celebrity popularity wave and…

Top Altcoins with the Most Potential For 2022

In 2017, altcoins became a thing when thousands of Bitcoin competitors flooded the market. Today, many altcoins have evolved beyond expectations and are stand-alone products with unique real-world applications. Furthermore, they provide an opportunity for investors to diversify their portfolios. Identifying the best cryptocurrencies to invest in can be overwhelming for most newbies, primarily since thousands of them exist. We bet you're having difficulty finding the most promising altcoins in the crypto space. So, this article should help you get…

Institutional Investors who have Expanded their Portfolio in 2021

Cryptocurrency and blockchain investments from the first 9 months of 2021 have surpassed last year's grand total. In the first half of 2021, the worldwide crypto and blockchain activity was $8.7 million, more than double last year's figures. It is a significant sign that institutional money is streaming into the crypto space. Furthermore, it increases the investor base, and thus the institutional awareness and knowledge of this sector are also surging. The "institutional adoption" of crypto is already underway. Today…

Understanding Cardano, IOHK, and EMURGO

Cardano is the first decentralized public blockchain platform that developed on a research-first driven approach. Charles Hoskinson, the co-founder of Ethereum, created it in 2015 and later launched it in 2017. It comprises a development team of global researchers and engineers. This platform's development continued thanks to academics and computer scientists and their peer-reviewed papers. The Cardano ecosystem involves three founding entities that work together. These partners are EMURGO, IOHK Company, and The Cardano Foundation. Cardano in a Nutshell Cardano…

Billionaires Who Have Publicly Showed Interest in Cryptocurrencies

The cryptocurrency boom of 2017 saw a rise in their acceptance from prominent economic figures. Since then, their volatility hasn't stopped significant investments in them. Today there's a push for their global mass adoption. Industry-leading lights and renowned celebrities have expressed their support for the assets. Nothing best captures this reality than Forbes's recent list of the world's wealthiest people. It indicates a growth in the number of crypto billionaires over time. From an asset that courted controversy and skepticism,…

Which is the Most Crypto-Friendly Country in Europe?

When cryptocurrencies made their first appearance in the financial world, many people were skeptical about them. Governments mainly felt threatened because the digital currencies dispelled the need for central banks. A little over a decade later, cryptocurrency mainstream adoption has made strides. However, many jurisdictions remain hostile toward digital currencies.  There's no denying that cryptocurrencies present several advantages, which is why many enthusiasts and investors are jumping on board. However, for mainstream crypto adoption to go globally, jurisdictions must accept…

Crypto Signals to Stop You from Succumbing to FOMO Woes

In the case of cryptocurrency, FOMO is popular due to enormous and rapid gains. However, as more people realize these great opportunities, they are afraid that they will miss them. When you think that you can win a particular cryptocurrency, you begin to buy it in huge numbers. As numerous investors and traders believe that blockchain and crypto are in the early stages and have excellent development potential, FOMO appears to be more than just a driving force in the…

Understanding Ethereum’s Solidity Programming Language

Ethereum is a cryptocurrency capable of storing value and making payments. However, that's not all. It is also a fully-fledged platform for creating smart contracts, and this is where Solidity comes in. Solidity is a high-level language for implementing smart contracts. It gets its inspiration from C++, Python, and JavaScript and should target the Ethereum Virtual Machine (EVM). This article will uncover all about the Solidity programming language and how it works. But first, we'll look closer at the Ethereum…

Hedera – A Comprehensive Guide to a Revolutionary Consensus System

Blockchain is the digital environment supporting cryptocurrencies and decentralized app (DApps). You may know it as one of the greatest innovations of the 21st century. However, this remarkable invention has its shortcomings. For instance, it is difficult to scale and consumes too much energy, making it bad for the environment. Fortunately, some projects aim to solve these issues. One of them, Hedera, has come up with a potentially better alternative to blockchain: Hashgraph consensus. Consequently, Hedera used it to open…