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EURK Pilot Test Smart Contract is unavailable for security reasons as of 2nd of April. Therefore, EURK will not be available for buying, selling, and exchanging until further notice.
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We sincerely apologize for the inconvenience caused.
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EURK Team
Proof-of-stake (PoS) protocols, like nominated proof-of-stake (NPoS), are becoming more popular as a faster way to verify transactions on blockchain networks than traditional proof-of-work (PoW) systems.
Join us in this article as we explore nominated proof-of-stake consensus mechanisms, how they work, and compare them to standard PoS in detail. We'll also discuss some of the advantages and disadvantages of using NPoS, as well as best practices.
By the end of our guide, you'll have a solid understanding of this important consensus mechanism powering some major blockchain protocols. Additionally, you can check “PoW vs. PoS” for further information.
Nominated proof-of-stake (NPoS) is a type of standard proof-of-stake (PoS) consensus, such as PPoS and DPoS. Instead of selecting validators at random or by the highest bidder, NPoS uses nominations from network stakeholders.
In NPoS protocols like Polkadot, stakeholders use their influence proportional to their stake to elect validators to produce blocks for a session.
To put it simply, NPoS stakeholders vote on or "nominate" the validators they want to validate transactions and secure the network, similar to a representative democracy.
Only those validators nominated by stakeholders above a minimum threshold are able to participate in consensus. At the end of each "session," there is a re-election process where stakeholders can update their nominations. To better understand this process, let’s continue with its differences with PoS!
The main difference between standard PoS and NPoS comes down to how validators are selected. In standard PoS, validators are often chosen through a pseudorandom selection process based on their total stake.
The more stake a validator has, the higher the chance they have of being randomly selected to produce new blocks and validate transactions. Contrarily, in NPoS systems like Polkadot, stakeholders who own the native cryptocurrency (DOT in Polkadot's case) explicitly nominate validators.
Only those who receive enough nominations above a certain threshold from stakeholders take part in block production and validation. This gives stakeholders more control and influence over which validators they want to secure the network and creates more of a merit-based system for participation.
Now that we understand some of the key differences, let's dive deeper into how nominated proof of stake works in practice, using Polkadot as an example:
First of all, Polkadot holders can choose to either validate themselves by running a validator node or they can delegate their stake to nominate other validators. These validators are responsible for securing the network and processing blocks.
As mentioned earlier, validators are chosen through a nomination process where stakeholders select validators they trust to validate. The top N stakeholders by accumulated stake who receive nominations above a minimum threshold are elected as validators.
These validators are then organized into committees to validate transactions and propose new blocks in rounds known as "eras." The committees take turns validating slots to reach consensus in a decentralized way.
At the end of each era, which lasts several hours, an evaluation of the validators is conducted, and underperforming validators may be replaced. Each era lasts between 4 and 24 hours, and during that time, the network picks validators with the most nominations and the largest stakes in a block.
To contrast, here is a brief overview of how standard proof-of-stake works:
In PoS systems, the more tokens (cryptocurrency) an entity holds, the greater the chance they have of being chosen to validate a new block of transactions and earn rewards. Validators stake (lock up) a certain amount of tokens. The total value of their stake determines their chances of being chosen.
A smart contract conducts a random selection of validators weighted by their total stake. The validator selected is responsible for collecting transactions into a block, running consensus to agree on the order, and then adding the block to the blockchain technology.
They earn block rewards and transaction fees for their work. If a validator is caught misbehaving or goes offline, they will lose part or all of their staked funds as punishment. This keeps validators honest. The process repeats, with different validators taking turns validating new blocks in a random selection.
Now that we understand how NPoS works, let's explore some of its key advantages and disadvantages:
As 85% of people do not have access to banks worldwide, EURK, the euro stablecoin, which is 1:1 backed by the euro in trusted bank reserves, can be an alternative for them to securely store and transact value.
Being a securely audited stablecoin that has reserves in Switzerland and the Dominican Republic, EURK offers users transparency and liquidity. To learn more about the benefits of these features, you can check “transparency for stablecoin” and “stablecoin liquidity”.
Based on the mechanisms of NPoS and the live implementations seen so far, here are some suggested best practices for stakeholders and validators to consider:
With responsible participation by informed stakeholders and professional validators, NPoS protocols can maximize decentralization while still maintaining a secure and developer-friendly consensus model.
In this article, we explored nominated proof of stake (NPoS), a popular variation of standard proof-of-stake consensus mechanisms powering protocols like Polkadot.
We saw how NPoS utilizes a nomination process where stakeholders collectively elect validators to secure the network, compared to pseudo-random selection in standard PoS.
We then dove into how NPoS works in practice, highlighted some advantages like increased decentralization, and also noted challenges around potential centralization risks.
Finally, we provided best practices for both stakeholders and validators to help NPoS networks reach their full potential as a scalable and community-driven consensus model.
With responsible participation from all parties and adherence to auditing principles like those employed by EURK, NPoS has a bright future in powering reliable and innovation-friendly blockchain protocols.
EURK is a secure, audited, and 1:1 euro backed stablecoin built on multiple blockchains and available on ERC20, empowering innovation with reliability and efficiency.
For transparent transactions, users can consider choosing EURK, the euro stablecoin, which offers speed, security, and transparency. Become a partner today to explore more!
