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Explaining Leased Proof-of-Stake (LPoS)
LPoS, a variant of Proof-of-Stake (PoS), serves as a solution to enhance mining capabilities, address issues within Proof-of-Work (PoW), and improve other PoS systems like Delegated Proof-of-Stake (DPoS).
Many cryptocurrency enthusiasts are familiar with Proof-of-Stake (PoS) when it comes to crypto staking. However, what exactly is Leased Proof-of-Stake (LPoS), and how does it relate to PoS?
LPoS is, in essence, a derivative of the PoS framework. PoS is a pivotal component of the blockchain consensus mechanism, where validators engage in staking to create and validate transaction blocks.
In PoS networks, validators usually need to stake a significant amount of cryptocurrency to increase their chances of generating blocks. Here, LPoS steps in. Individuals lacking the technical expertise or financial resources can lease their tokens to validator node operators, thus enhancing the odds of these validators being selected to create new blocks. As compensation, leasers receive a portion of the transaction fees collected by the validator.
In the LPoS environment, users have the option to lease their stake or operate a full node. Nevertheless, the more tokens a node has staked, the higher the likelihood of it being chosen to generate a new block. LPoS enables users to reap the benefits of mining without undergoing the actual mining process.
How Leased Proof-of-Stake Operates
LPoS operates on a concept akin to a lottery, where increased stakes correlate with higher chances of obtaining rewards. The LPoS system follows these key steps:
- Create a lease transaction: Tokenholders lease their coins to a node, specifying the amount and recipient address. Leases can be canceled at any time.
- Wait for block generation: Leased funds become part of a node's pool, enhancing the likelihood of winning the next-block lottery.
- Consensus participation: LPoS enables leasers to engage in the consensus process, with larger nodes having better odds of generating the next block.
- Generate blocks: Winning nodes validate transactions, compile them into blocks, and receive transaction fees as rewards.
- Share rewards: Node operators distribute rewards to leasers based on their investments, with higher stakes resulting in more substantial rewards.
It's crucial to note that the leased tokens never leave the leaser's hardware wallet and remain under the complete control of the tokenholder. The holder merely associates the chosen node(s) and does not transfer the tokens to the node in question. No party can trade or transfer the tokens, including the holder, who can only transact or spend the allotted coins upon canceling the lease.
Key Features of Leased Proof-of-Stake
LPoS boasts several features, including decentralization, balance leasing, fixed tokens, and scalability. The primary characteristics of LPoS encompass:
- Balance leasing: Leased tokens remain with the tokenholder and cannot be transferred to validators or traded. Users can lease tokens directly from cold storage or wallets.
- Decentralization: LPoS allocates rewards based on the staked amount, eliminating the need for mining pools. It also promotes blockchain governance through a peer-to-peer protocol, preventing third-party interference.
- Unpredictable block generation: The system's design ensures that the next block generator cannot be predicted, although nodes with larger economic stakes have a better chance of selection.
- Fixed tokens: LPoS does not introduce additional tokens into circulation, focusing solely on token leasing.
- Scalability: LPoS developers prioritize high on-chain scalability over second-tier applications.
- Rewards: Unlike some blockchain systems that offer block token rewards, LPoS compensates successful node operators with transaction fees.
LPoS's Role in Blockchain Validation
LPoS, a PoS variant, plays a crucial role in validating cryptocurrency transactions on a blockchain network.
LPoS employs nodes or network devices to verify and validate transactions within the blockchain. Node-based validation relies on computational randomness, determined by the financial stake of each node, to grant the right to validate transactions.
The PoS consensus algorithm considers specific factors to decide which node is most suitable for validating transactions:
- Age of tokens: The longer tokens remain staked but unused on the LPoS platform, the better the chance of being chosen to validate the next transaction. Upon verifying a transaction, the stake's age resets to zero.
- Size of stake: A larger stake increases the probability of being selected for validation.
Unlike PoW systems that rely on raw computational power, PoS utilizes passive cryptocurrency deposits, making it more resource-efficient.
Currently, two prominent blockchains implement LPoS: Waves, which employs LPoS to verify the blockchain's state by enabling users to lease tokens to generating nodes and receive rewards, and Nix, which utilizes a permissionless staking mechanism allowing users to stake tokens through third-party wallets, with the third party handling the staking process.
Benefits of Leased Proof-of-Stake
LPoS offers numerous advantages, stemming from the ability to earn rewards without active trading, increasing reward potential by participating in larger nodes, and built-in security features.
The benefits of LPoS participation include:
- Passive investment: Users can partake in block generation and earn rewards without actively engaging in the block-generating process.
- Inclusion of smaller investors: LPoS protocols have a minimum investment requirement for network participation, enabling users with fewer tokens to lease their cryptocurrency to larger nodes and have a chance at earning rewards.
- Resistance to manipulation: The LPoS generating balance rule prevents manipulation attempts by calculating the lowest balance after considering leasing in the latest 1,000 blocks.
- Increased chances of rewards: LPoS rewards nodes with a greater economic stake in the network, making leasing tokens to larger nodes more likely to yield rewards.
- Ownership retention: Leased tokens remain under the holder's control, reducing the risk of loss.
- Low barrier to entry: LPoS does not necessitate mining hardware for participation.
LPoS Crypto Mining Alternatives
Alternative PoS-based systems to LPoS include Delegated Proof-of-Stake (DPoS), Pure Proof-of-Stake (PPoS), and Proof-of-Validation (PoV).
These PoS alternatives allow users to participate in transaction validation and block creation within a blockchain:
- Delegated Proof-of-Stake (DPoS): Users can delegate block production to delegates or witnesses through a democratic voting system, where votes are weighted by the number of tokens held on the platform.
- Pure Proof-of-Stake (PPoS): This approach, used by Algorand, enables users to vote on representatives who propose new blocks and vote on proposals.
- Proof-of-Validation (PoV): PoV aims for consensus through staked validator nodes, with the validator's number of tokens determining their voting power.
Additionally, some LPoS protocols combine PoS and PoW elements, using PoW to create new blocks containing transactions and PoS to validate those blocks.