Staking

Staking is the consensus algorithm in delegated proof of stake coins, which is essentially a process of pooling (delegating) the validation stakes with one wallet, called a staking pool. Like with mining, each delegator gets a share of the rewards, corresponding to their share in the delegate’s staking balance.

PoS Validation

With proof of stake coins, the principle of validation is applied instead of mining. Whereas the possibility of finding a new block in PoW coins depends on the miner’s computing power, in PoS it depends on how many coins the validator is holding. The first coin to introduce PoS validation was Peercoin.

Unlike PoW, proof of stake validation doesn’t require large processing power to be allocated for hashing, and requires only large amounts of coins (stakes) to be held on the validator’s wallet. Although PoS doesn’t improve decentralization, it makes the 51% problem insignificant, as collecting 51% of all issued coins is merely impossible on a free market.

‘Clean’ PoS allows pooling of resources for validation, however it requires transacting the funds to someone’s wallet and losing control over them, which requires more confidence and trust than in other consensus algorithms. Thus, pooling in PoS is very rare and unusual.

Staking Principle

Unlike PoS, the delegated proof of stake (DPoS) requires pooling of resources, but without physically transferring them to another wallet. Usually, pooling is provided by staking service providers, companies that operate nodes built specifically for staking. Each blockchain has its own staking service providers, but several companies exist that provide staking services in multiple blockchains, for example, Figment Networks, Everstake and Mythos.

DPoS was developed in 2014 and first implemented in 2015, by Bitshares, and is now used by multiple blockchains, with slight differences in the process and terminology.

Delegated proof of stake (DPoS) is an extension of PoS distributed consensus. With DPoS, the holders of assets don't validate new blocks. Instead, they delegate their stake to a block validator of their choice, who and shares the rewards with the delegators (stakers), according to the size of their deposits. The delegates are chosen by combining random selection and staked wealth, like in the PoS blockchains.

The number of validators is voted by network users and varies between 20 and 100. For each period, the network forms a pseudo-random queue of validators, who are given a short time interval (usually one second) to process new transactions and form a new block. If a validator fails to do so, the next one is allowed to take the work and reward for it. For the next period, the validators are sorted randomly again.

Staking Glossary

Stake

The amount of coins, delegated by a user to the staking balance of a pool. These coins physically remain on the delegator’s wallet, but can’t be sent until they get unstaked.

Staking balance

Combined balance of all stakes delegated to a staking pool. This balance is used by the consensus algorithm to select top nodes that will be allowed to stake in the next period.

Missed block

A set of transactions, that a staking pool has failed to verify and confirm in the given time (less than a few seconds). Missed blocks don’t provide rewards to the pool and its delegators.

Stolen block

A set of transactions, that should have been verified and confirmed by the previous pool, but is verified by the current pool instead. Such a block will generate the usual amount of rewards, but high amount of block steals in a pool signal for fast and up-to-date hardware and good Internet connection.