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Proof Of Stake

Proof-of-stake (PoS) is a method by which a cryptocurrency Blockchain network aims to achieve distributed consensus. While the proof-of-work (PoW) method asks users to repeatedly run hashing algorithms or other client puzzles, to validate electronic transactions, proof-of-stake asks users to prove ownership of a certain amount of currency (their “stake” in the currency). Peercoin was the first cryptocurrency to launch using proof-of-Stake. Proof-of-stake must have a way of defining the next valid block in any Blockchain. Selection by account balance would result in (undesirable) centralization, as the single richest member would have a permanent advantage. Instead, several different methods of selection have been devised.

How POS has Failed

Proof-of-Stake (PoS), when it was first released by Peercoin and then used by Nxt, seemed to be a solution. In Proof-of-Stake, someone’s chance of getting a block depends on how much stake they have so in order for someone to get more than 50% of the forging power (“forging” is the process by which new blocks are made just like “mining” but the exact method in PoS is different so it was given a different name for NxtCT r: 73), they would need to control more than 50% of the coins in existence.

This seems even more infeasible than controlling 50% of the mining power in a PoW currency! Further, members of the Nxt community boast that Nxt will still be safe for up to 90% of the forging power upon full implementation of a new feature called “Transparent Forging!”

Thus causing the inevitable Corruption by guaranteeing that someone will gain enough stake to manipulate the entire Blockchain.

The Rich Get Richer

If the rich are more likely to get a block, they are more likely to collect the reward for the block. Every block they get, the richer they become. The richer they become, the more likely they are to collect the reward for a block.

This keeps going on for the life to the cryptocurrency and if the cryptocurrency lives long enough, it will see 51% stake holders, or 91% stake holders, or even 99.91% stake holders. It is only a matter of time.

Thus causing the inevitable Corruption by guaranteeing that someone will gain enough stake to manipulate the entire Blockchain.