Transition from POW to POS, new on-chain ecosystem established by Staking

The miners have been faced with a tough challenge since the third halving of Bitcoin. the cost of electricity consumed by the mining machines is out of proportion to the block rewards. The competition is becoming more and more fierce, and nearly 30% of the mine pools were shut down due to the shortage of income.

The initial intention of the POW consensus algorithm is to guarantee a stable value of the currency by consuming a large amount of energy, manpower and material resources, in the meantime, the gradually reduced amount of unissued Bitcoin is supposed to raise the market price. However, POW is now no longer suitable for the fast-changing ecosystem of blockchain. The POW consensus algorithm has rarely been used in the currencies rolled out since 2019, just the reverse, the POS consensus algorithm has been prevailing. Even the industry giant Ethereum is also planning to change its algorithm from POW to POS over all. What are the reasons behind these phenomena?

1) Gradually exposed shortcomings of POW

The waste of hashrate and resources.

With the growth of the cryptocurrency field, the difficulty of mining has also increased day by day, and a large proportion of miners with medium power cannot balance the input and output; in the meantime, the increasing consumption of manpower and electricity also undermines the ecological balance of crypto-industry: the head mining machines all swarm to the chain of Bitcoin while the other chains are left under-exploited. This situation clearly violates the original intention of the POW consensus algorithm to maintain currency value and deter abuse.

Slow confirmation and low throughput.

As a consensus algorithm in the early stage, POW focuses more on ensuring the security of transactions, thereby ignoring the efficiency of block generation, and multiple confirmations are needed to finally pack a block. The time span for reaching consensus is long (10 minutes), which can no longer meet the growing market demand.

2) POS meets development needs of cryptocurrency

Enhanced efficiency.

POS has increased the speed of reaching consensus to meet the growing business needs. In addition, POS eliminates the mining process and avoids the unnecessary waste of resources such as manpower.

Maintaining long-term value.

Under the POW mechanism, miners mostly focus on short-term interests and are not interested in the project itself. However, under the POS mechanism, the relationship between users and projects is closer, especially through staking and other means to increase user participation and maintain the long-term value of the project. To conclude, adopting the POS algorithm can do good to the ecosystem development of the cryptocurrency circle in many ways.

Tips:

As the top blockchain solution provider in the industry, DREP combines the advantages of different consensus algorithms, maximizes the speed of confirmation on the premise of ensuring low energy consumption and decentralization. Therefore, DREP Chain integrated the DPOS and PBFT to form DBFT consensus algorithm.

PBFT is a safe and efficient consensus algorithm. However, its efficiency is not high enough for the demand on public chains. DREP will adopt the Schnorr Multi-Signature Algorithm7 to enhance the performance, allowing the integration of a large number of signatures into a singular signatory, thereby improving DREP Chain’s efficiencies in terms of storage, network transmission and other aspects, reducing network transmission overheads.

DPOS consensus mechanism selects some node representatives to participate in transaction verification and accounting to get higher performance and faster efficiency. DREP combines the advantages of DPOS and PBFT, to achieve better fault tolerance, more stable consensus, more efficient, less prone to fork. In the DBFT consensus mechanism, the proper operation of the blockchain depends on the trustees, who are fully equivalent. The trustee’s responsibilities include:

• providing stable servers to ensure normal operation of the nodes ensuring the nodes will collect network transactions

• ensuring the nodes will collect network transactions

• ensuring the nodes will validate the transaction and pack the transaction into blocks

• ensuring the nodes will broadcast the blocks, and add blocks to their own database after verification by other nodes

• Participating in the governance and maintenance of DREP Chain

The trustee’s node will receive block rewards and transaction fee for performing their duties.

With the popularization of the POS consensus algorithm, staking has also become a hot topic. As a kind of behavior under the POS mechanism to exercise the related rights and interests of the held tokens, staking allows token holders to participate in various activities such as voting, which provides an opportunity for currency holders to contribute to the development of both projects invested and the overall ecosystem of cryptocurrency field.

The model of staking is simple and easy to understand. In this mode, the miners are the coin holders at the same time, not only reducing the waste of resources, but also lowering the entry threshold, and expanding the user base. Everyone can be a miner as long as holding coins. At present, the average Staking return rate (currency standard) of mainstream POS projects is about 10% or even higher. Such returns are higher than those of traditional investments, which will still rise as the coin value goes up.

Tips:

DREP will also adopt Staking in the upcoming mainnet. DREP token holders interested to participate in the verification of transactions over the DREP network are able to stake their tokens to support nodes in becoming candidate nodes. The staking participant will be rewarded based on the staking duration and the number of tokens staked. When the participant needs the token for other transactions, he can submit a withdrawal request and will receive the staked tokens together with staking rewards in his wallet after the current DBFT cycle.

By actively participating in the network system through staking, token holders enhance network security safeguard their rights as token holders and receive staking rewards. Without actively staking, the tokens held do not grant the holder any rights and benefits from staking. Thus, the staking economy is a significant trend for cryptocurrencies and is inseparable from every token holder.

About DREP Foundation

DREP is committed to building “connectors” and “toolkits” based on blockchain technology, providing solutions that combine ease of use, flexibility and frictionless integration. Based on DREP Chain, DREP ID and DREP SDK, DApp R&D teams are able to release multi-public-chain asset versions, built-in wallets and asset trading platforms with one-click.

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