What is Proof of Stake?
Proof-of-Stake (PoS) is a type of consensus model that blockchain networks utilize to verify transactions. It is important to note that blockchains are decentralized ledgers that enable transactions without any central authority such as banks or private firms.
Therefore, blockchain networks require a mechanism that they can use to validate the authenticity of transaction records on them.
There are many types of consensus models. However, PoS are a method where blockchain nominate nodes as validators. These validators have the ability to authenticate and approve transaction records.
However, validators have to stake a considerable amount of native token of the given blockchain in the smart contract. If a validator increases the total locked or staked funds, their chances of getting verification contract also rises.
What is Leased Proof-of-Stake (LPoS)?
LPoS is a modified type of PoS. In LPoS validators nodes have the advantage of leasing their token reserves to a validator. In this manner, they can increase the staking power of a particular validator in exchange for earning a portion of the block rewards.
The leasing nodes in question can lack the technical knowledge or financial advantage but can participate in the process of block generation through this process. Therefore, in an LPoS blockchain network token holders have the ability to stake their reserves or run a full node.
Meanwhile, a validator that can amass the largest amount of leased tokens can increase their chances of verifying new blocks. In this manner, the earning potential for the validator also increases.
However, the validators have to share a portion of their additional income with the leasers in accordance with the proportion of their contributions. At the same time, the LPoS investors have an option to earn mining rewards without participating in the mining process.
How does Leased Proof-of-Stake Work?
Here are some steps to explain the LPoS process:
- Token holders or nodes initiate a lease transaction by selecting an amount and inputting wallet address. Investors can cancel the lease at any time.
- Leased funds are added to the validator’s pool and increase the chance of verification contract.
- Leasers can participate in the block creation process.
- Nominated nodes verify transactions, arrange them in blocks, and earn transaction fee.
- Validators or node operators distribute the rewards among stakers proportional to the invested amount.
- Leased token remain within the custody of participants but are linked to the validator funds through linking. Once leased, the nodes cannot spent or transfer the tokens without canceling the lease contract.
Features of LPoS
Here are some important features of LPoS:
Leased tokens are not transferred to validators. At the same time, leasers cannot conduct trade with them. Investors have the ability to leased tokens out of a cold storage wallet.
LPoS networks distribute rewards based on the proportion of staked amount. At the same time, these networks use peer-to-peer protocols for making transactions. Therefore, it does not have mining pools or third-party intervention.
Unpredictable Block Generation
The process of validator is a randomized process to ensure unbiased operation. However, the greater staked token amount can play an important role in increasing the chances of a node to get a selected for generating the next block.
The total amount of leased token is not increased by mining.
LPoS developers place greater emphasis to scalable protocols in comparison to second-tier applications.
Some blockchains issue token rewards for transaction verification but LPoS networks issue transaction fees as remuneration.
LPoS has many advantages such as passive investment options, smaller investment participation, security against bias, incentivizing collaboration among network participants, and low entry barrier, etc. Blockchain networks also use different types of PoS mechanisms such as Delegated PoS, Pure PoS, Proof-of-Validation, and Hybrid PoS.