Tezos Invents ‘Liquid Proof-of-Stake’ Consensus Mechanism
Tezos (XTZ) has cleared up some misconceptions about how its proof-of-stake (PoS) mechanism works. As it turns out, the Tezos model falls somewhere in between classical PoS and its more controversial counterpart, delegated PoS. The project’s blog is now describing Tezos with a newly-coined term: liquid proof-of-stake.
So…what is the difference? First, let’s consider two major varieties of proof-of-stake.
At its most basic, a proof-of-stake consensus mechanism allows coinholders with more assets to have a greater say in the collective decisions that determine which blocks are validated. Classical proof-of-stake platforms allow anyone to participate in validation. Ethereum is one example:
“Anyone who holds the blockchain’s base cryptocurrency … can become a validator by sending a special type of transaction that locks up their ether into a deposit. The process of creating and agreeing to new blocks is then done through a consensus algorithm that all current validators can participate in.”
But more recently, an alternative has been gaining ground, and Tezos has often been compared to it.
Platforms like EOS and TRON deviate from the above model by implementing a delegated proof-of-stake mechanism. This means that token holders elect a certain number of block validators, thereby delegating the responsibility of deciding the course of the blockchain to the elected parties. Usually, there are just a handful of validators: for instance, EOS has 21, and TRON has 27.
These elected validators aren’t just anyone: they’re usually large organizations or companies with a lot of computing power and enough name recognition to run an election campaign. This increases efficiency, but sacrifices decentralization: in DPoS, a few centralized powerhouses are responsible for maintaining the blockchain. This is a controversial system, as it gives a lot of power to a few entities.
How Is Tezos Different?
Tezos does allow delegation, but its “liquid PoS” model has a lower barrier of entry than DPoS does. Tezos’ group of validators (or “bakers”) is a far less exclusive club: it allows up to 80,000 validators instead of a few dozen, and it doesn’t involve elections.
You can become a Tezos block validator by holding a substantial number of tokens, just like you could on a classical PoS blockchain (at the moment, you must have about $20,000 worth). However—and this is where delegation comes in—users who can’t afford to be validators can choose to delegate their tokens to validators and receive some of the rewards. In other words, the delegation is completely optional: wealthy users can stake tokens without having less wealthy users delegate tokens to them.
Although there are finer points to be considered—such as Tezos’ deliberate inflation—it seems that Tezos is a middle-of-the-road solution that falls between the two types of proof-of-stake. It may succeed in striking a balance between the decentralized features of classical PoS and the performance benefits of delegated POS.
However, there are some criticisms: the process is, at the moment, not very accessible to basic users. Despite Tezos’ recent upturn, this drawback may result in limited recognition of the feature unless changes are made.
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