• Fri. Dec 6th, 2024

What Is Leased Proof-of-Stake (LPoS)?

What Is Leased Proof-of-Stake (LPoS)?

Normal cryptocurrency users might have come across the term proof-of-stake (PoS) when engaging in crypto staking. But, leased proof-of-stake (LPoS) might be a new term for many. Is there a connection between LPoS and PoS?

LPoS, or Liquid Proof of Stake, is a PoS variant designed to enhance computational capacity, mitigate the inherent challenges associated with PoW (Proof of Work), and enhance the performance of various PoS variants like Delegated Proof of Stake (DPoS).

Hence, LPoS and PoS are related since LPoS is just a variant of the PoS ecosystem. Proof-of-stake is a crucial element of the blockchain consensus mechanism, where the validators participate in staking aiming to generate and authenticate transaction blocks.

The validators on proof-of-stake platforms normally have to stake a lot of crypto to enhance their chances of block generation, and here is where LPoS becomes important. Those tokenholders with no technical expertise or financial muscle can lease their tokens to validator node operators, boosting the validator’s chance to get the opportunity to develop new blocks. On that note, they earn a share of the transaction fee that is paid to the validator.

Related: What Are Liquid Staking Derivatives (LSD)?

In a leased proof-of-stake space, tokenholders can lease their stake or decide to run a full node. Nevertheless, the more tokens staked by a node, the better its probability of being chosen to generate a new block. LPoS enables users to acquire the proceeds of mining without having to go through the mining process.

How Leased Proof-of-Stake Operates

LPoS works in the same manner as a lottery since more stakes increase someone’s chances of winning rewards.

How does leased proof of stake work? The LPoS platform follows multiple set processes:

  • Create a lease transaction: Tokenholders are allowed to lease coins to a node, stating the amount and recipient address. On that note, leases can be canceled at any time.
  • Wait for blocks to generate: Leased funds enter a node’s pool, increasing the possibility of winning the next-block lottery.
  • Participation in Consensus: In LPoS, leasers can actively engage in the consensus mechanism, where larger nodes enjoy improved chances of crafting the next block.
  • Block Generation: The victorious nodes in LPoS undertake transaction validation, assemble these transactions into blocks, and, in return, earn transaction fees as their well-deserved rewards.
  • Reward Sharing: Node operators, in the LPoS system, distribute rewards to leasers according to their investments, with higher stakes yielding more substantial and proportionate rewards.

The leased tokens never leave the leaser’s hardware wallet and remain in full control of the token holder. In that context, the holder just links the selected nodes and does not transfer the tokens to the said node.

Hence, no entity can transfer or trade the tokens, including the holder. The holder can just transact or spend the allotted tokens once they cancel the lease.

Main Features Of LPoS

Some of the key features of LPoS include balance leasing, scalability, decentralization, and fixed tokens. These key features include:

Decentralization

LPoS offers rewards influenced by the staked amount, eliminating the need for a mining pool. Furthermore, it is great for blockchain governance, since it utilizes a peer-to-peer protocol that helps prevent third-party intervention.

Balance Leasing

The leased tokens do not transfer to validators, nor can they be traded in the market. Users are allowed to lease out their tokens and money from cold storage and wallets.

Fixed Tokens

Mining never adds more tokens to LPoS, since the system allows token leasing only.

Unpredictable Block Generation

The selection of the next block generator cannot be reliably forecasted, but it’s essential to recognize that nodes with larger economic stakes have an increased likelihood of securing the privilege to generate the next block.

Scalability

LPoS developers prioritize high-on-chain scalability over second-tier apps.

Rewards

Other blockchain networks give block token rewards, but LPoS offers transaction fees to reward the successful node operators.

Related: What Is Proof Of Replication (PoRep)

The Role Of LPoS In Blockchain Validation

LPoS is a PoS that is used to validate crypto transactions within a blockchain network.

Interestingly, LPoS uses nodes or network devices to validate blockchain transactions. Node-based validation utilizes computational randomness, supported by the financial stake of a node, to assign the rights to validate blockchain transactions.

A PoS consensus algorithm relies considerably on these factors to determine which node is perfect to validate transactions at any particular time:

  • Token Seniority: The extended period during which tokens are staked but not employed on the LPoS platform enhances the likelihood of their selection for validating the next transaction. Once the stake confirms an LPoS transaction, its age resets to zero.
  • Stake Magnitude: A larger stake size directly augments the probability of being chosen for the validation process.

PoS operates by utilizing dormant cryptocurrency deposits as opposed to the computational intensity associated with mining hardware in PoW systems, rendering PoS a more resource-efficient alternative compared to PoW.

Today, two top blockchains use LPoS. The first is the Waves blockchain, which utilizes the LPoS consensus algorithm to validate the blockchain’s state by letting users lease their tokens to generating nodes, and they get rewards that are distributed by these nodes.

Ultimately, Nix uses a permissionless staking mechanism that enables the users to stake using a separate third-party wallet, with the third party being responsible for staking.

Kevin Moore - E-Crypto News Editor

Kevin Moore - E-Crypto News Editor

Kevin Moore is the main author and editor for E-Crypto News.

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