Leased Proof of Stake (LPoS), explained.
Understanding leased stock verification
LPoS is a type of PoS that is intended to increase mining power, solve inherent problems in PoW, and improve other types of PoS, such as Delegated Proof-of-Stake (DPoS).
Regular cryptocurrency users may have come across the term proof-of-stake (PoS) when looking at crypto staking, but what is proof-of-stake (LPoS), and is there a connection between the two?
Yes, LPoS is simply a variant of the PoS system so they are related. Proof of stake is a key component of the blockchain consensus mechanism, where verifiers participate in staking to generate and verify transaction blocks.
Validators on proof-of-stake platforms typically need to register more cryptocurrency to improve their block generation chances, and this is where LPoS comes in handy. Token holders without the technical know-how or financial muscle can lease their tokens to validator node operators, increasing the chance that the validator will be able to create new blocks. In return, you will receive a share of the transaction fee paid to the verifier.
In an LPoS environment, tokenholders can lease their shares or run a full node. However, the more tokens stored in a node, the better the chance of being selected to create a new block. LPoS allows users to earn mining revenue without having to go through the mining process.
How does leased stock verification work?
Since LPoS operates on the same lines as the lottery, more stakes increase one's chances of winning prizes.
So, how does leased stock verification work? The LPoS system follows a series of processes:
Create a Lease Transaction: Tokenholders lease coins to a node, specifying the amount and address of the recipient. The rental contract can be canceled at any time. Wait to generate a block: the rented funds will be added to the pool of the node, which will increase the chance of winning the next block lottery. Collective Agreement Participation: LPoS enables tenants to join the collective agreement process; Larger nodes have a better chance of generating the next block. Create blocks: Winning nodes confirm transactions, compile them into blocks, and receive transaction fees as rewards. Distribute rewards: Node operators distribute rewards to users based on investment, with higher stakes resulting in more valuable rewards.
Please note that leased tokens do not actually leave the leased hardware wallet and you have full control over the token holder. The holder will only connect the selected node(s) and will not transfer the tokens to the specified node.
No entity may trade or transfer the tokens, including the holder. When the holder cancels the lease, they can trade or withdraw the allocated coins.
Key features of leased stock verification
Some features of LPoS include decentralization, balance rental, fixed tokens, and scalability.
The main features of LPoS include:
Rent balance
Rented tokens are not transferred to validators or traded. Users can rent out their tokens and funds from a cold storage or wallet.
Decentralized
LPoS distributes rewards according to the amount paid, eliminating the need for a mining pool. It is ideal for blockchain management as it uses a peer-to-peer protocol to prevent third-party interference.
Unexpected block generation
There is no way to predict who will win the right to generate the next block. The only thing to note is that the higher the economic share of the node, the higher the probability of winning the right to generate the next block.
Fixed tokens
Mining does not add additional tokens to LPoS as the system only allows token leasing.
Size capacity
LPoS developers prioritize on-chain scalability over secondary applications.
Awards
Other blockchain systems offer block token rewards, but LPoS issues transaction fees to reward successful node operators.
The role of LPoS in blockchain authentication
LPoS is a type of PoS used to verify cryptographic transactions in the blockchain network.
LPoS uses nodes or network devices to validate and verify blockchain transactions. Node-based authentication uses computational randomness based on a node's financial stake to grant the rights to verify blockchain transactions.
The PoS consensus algorithm relies on these factors to determine which node is suitable for confirming transactions at any given time:
Age of Tokens: The longer the held tokens remain unused on the LPoS platform, the better the chance of being selected to confirm the next transaction. Once the stake has confirmed LPoS transactions in real time, its age will reset to zero. Stake size: The bigger the stake, the better the chance of confirmation.
PoS uses passive cryptocurrency deposits instead of the raw computational power in mining hardware used in proof-of-work (PoW) systems, making PoS more resource-efficient than PoW.
Two leading blockchains currently use LPoS. The first is the Waves blockchain, which uses the LPoS consensus algorithm to verify the state of the blockchain by allowing users to rent tokens to generate nodes and earn rewards distributed by these nodes. Finally, Nix uses a permissionless staking mechanism that allows users to share in different third-party wallets, with the third party responsible for the shares.
Benefits of leased stock certification
The many benefits of LPoS range from earning rewards without actively trading, increasing your chances of earning rewards by joining a larger node, and the security features baked into the LPoS process.
By participating in LPoS, one can realize many benefits:
Passive investment
Users can earn some rewards without participating in the block generation process.
It allows small investors to participate
LPoS protocols contain a minimum investment requirement for network participation. For example, Waves only allows a node to participate in block generation if it has at least 1,000 Waves (WAVES). Smaller investors can rent out cryptocurrency tokens to known nodes for a chance to earn rewards.
Difficult to manage
The LPoS generator balance rule calculates the minimum balance after intending to rent within the last 1,000 blocks, thwarting fraud attempts by moving funds between accounts.
It increases the chances of winning prizes
LPoS works in a way that rewards nodes with the most significant economic stake in the network. Therefore, renting out tokens to a larger node increases the chances of receiving rewards than if the renter decided to go it alone.
Maintain ownership
No one can trade or transfer the leased tokens (not even leaving the wallet), reducing the risk of loss.
Low barrier to entry
It does not require mining hardware to participate in verification.
LPoS crypto mining options
Alternatives to LPoS that use PoS include Proof of Representation, Proof of Net Stake, and Proof of Attestation.
While not technically a way to mine cryptocurrencies, PoS allows users to verify transactions and create new blocks on the blockchain. LPoS allows users to lease crypto tokens to nodes that validate LPoS transactions.
Several alternatives to LPoS allow users to use the PoS consensus mechanism:
Delegated Proof of Intent (DPoS)
Users can delegate through a democratic voting system to agents or witnesses to produce new blocks with votes weighted by the number of tokens held on the platform.
Pure Proof of Stake (PPoS)
This is primarily used for the development of decentralized applications (DApps) on the Algorand blockchain. Users can vote to elect representatives who vote on suggestions and submit new blocks.
Proof of Authenticity (PoV)
This objective is to achieve consensus through a set of verifier nodes. The number of tokens held with each validator determines the validator's voting numbers. When a validator with at least two-thirds of the network's total vote casts a verbal vote on a block, this validates the new block.
Hybrid Authentication (HPoS)
Some LPoS protocols use the power of PoS and PoW. They use PoW to create new blockchain transactions and use PoS to validate blocks.
