Many people wonder what Proof of Stake is, and how it works. In this document you will find a few overview links, and a FAQ further down. If there is anything missing or still unclear, feel free to ask me about it!
Overview:
- https://en.wikipedia.org/wiki/Proof-of-stake
- https://www.investopedia.com/terms/p/proof-stake-pos.asp
- http://cryptocurrencyfacts.com/proof-of-stake-pos/
More technical (not for newbies):
- https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ
- https://en.bitcoin.it/wiki/Proof_of_Stake
- https://bitcoinmagazine.com/articles/what-proof-of-stake-is-and-why-it-matters-1377531463/
Original whitepapers:
- Peercoin PoS: https://peercoin.net/assets/paper/peercoin-paper.pdf
- Blackcoin PoS v2: http://blackcoin.co/blackcoin-pos-protocol-v2-whitepaper.pdf
- Blackcoin PoS v3: https://blackcoin.org/Blackcoin-POS-3.pdf
- Blackcoin PoS v3.1: https://blackcoin.org/blackcoin-pos-protocol-v3.1-whitepaper.pdf
You leave your wallet open, connected to the Internet. The amount of coins you have determines how often you will receive a reward. Additionally, if you have encrypted your wallet, you need to "unlock" it in order to be able to stake. There is usually an indicator in your wallet that will say "Staking".
No. It will just take much longer until you get a reward, if you only have a few coins.
No. But you might not get the full reward if you are offline a lot, depending on the implementation. POS 1 and 2 have mechanisms to ensure that you will always receive the full reward according to your balance, while with POS 3, your total reward will depend on the amount of time you have been online. Fore more details, see the Calculations section below.
No. If your wallet is not encrypted, there is no need to unlock it.
Because it is just an estimation of the average time you need to wait. It depends on the network weight and your local weight. If some of your coins become immature or when the network weight changes, then this number will change accordingly. If nothing changes, then this number will stay the same, since it is the expected time you need to wait, on average.
When some of your coins have staked or just arrived at your wallet, they are "disqualified" for a certain time. This is necessary for technical reasons. We call these coins "immature". After a certain time (that depends on your coin), they will become mature. Only coins that are mature can participate in staking, and are added to your local weight.
See above.
You created (minted/forged) a block, and should get the reward, but some other block was added to the blockchain some seconds earlier than yours. That means your block is not included in the current blockchain. This is completely normal, the next time you may be some seconds earlier than someone else.
The idea of POS is that you will generate blocks according to your fair share in the network. For example, if you own 1% of the coins in the network, you will generate every 100th block. Unfortunately the "local weight" and the "network weight" are not completely accurate numbers, as coins that just generated a block are disqualified for a certain time and do not contribute to the weight until the stake is mature. We will still use these two numbers for a rough estimation. Also, because new coins you earned will add to your local weight after they have become mature, the reward curve is exponential. But using a linear estimation here is usually good enough to get an idea.
As I said, you will generate blocks according to your fair share in the network. This is true for POS 2 and POS 3. So you can calculate the average time between your rewards using this formula:
Waiting time = Network weight / Local weight * Block time
where Network weight is the total balance of all participants in the network, including ourselves. In POS 1, your local weight will increase over time, so even very small balances will get a reward from time to time. This comes with various security problems, which is why POS 2 was invented.
Based on the above formula, you can calculate the number of rewards per time unit by dividing your desired time span through your expected waiting time:
Rewards per Time = Time / Waiting time
For example with Time = one Year you will get the number of rewards per year.
With POS 1 and 2, the reward size will be adjusted based on the last time you staked using those coins, in such a way that it totals out to a fixed percentage per year:
POS 1/2 Reward = Time / one Year * Balance * Percentage
So for Time = one Year that is simply Balance * Percentage.
With POS 3, the reward size is calculated as a fixed percentage of the total coin supply:
POS 3 Reward Size = Coin supply * Percentage / Blocks per Year
where Blocks per Year = one Year / Block time. When we know the reward size, calculating the total reward is simple:
POS 3 Reward = Rewards per Time * Reward size
If we assume for POS 3 that everybody is staking, so that Network weight = Coin supply, we can simplify the equations as follows:
POS 3 Reward = Rewards per Time * Reward size
= Rewards per Time * (Coin supply * Percentage / Blocks per Year)
= (Time / Waiting time) * (Coin supply * Percentage / Blocks per Year)
= (Time / (Network weight / Local weight * Block time))
* (Coin supply * Percentage / Blocks per Year)
= Time / Block time * Local weight * Percentage / Blocks per Year
With Local weight = Balance, Time = one Year and Blocks per Year = one Year / Block time we get a total reward of Balance * Percentage per year, which is the same as for POS 2!
If we re-insert this lower bound of the total reward into the original equation, we get:
POS 3 Reward = Rewards per year * Reward size = Balance * Percentage
=> Rewards per year = Balance * Percentage / Reward size
and with Rewards per year = (365 days / Waiting time)
(365 days / Waiting time) = Balance * Percentage / Reward size
=> Waiting time (days) = 365 * Reward size / (Balance * Percentage)
Realistically not everybody is staking, so the numbers will be better by a factor of Coin supply / Network weight. In particular, the total reward with POS 3 will be higher than with POS 2 if you stake 24/7.
If we assume that everybody on the network is staking, the following equations hold for all classical POS implementations:
- You will get
Balance * Percentagecoins per year, on average - You will get
Balance * Percentage / 365coins per day, on average
If your coin uses POS 3, we can additionally make the following calculations:
- You will get a reward
Balance * Percentage / Reward sizetimes per year, on average. - You will get a reward
Balance * Percentage / Reward size / 365times per day, on average. - The average waiting time is
365 * Reward size / (Balance * Percentage)days (the inverse of the above). - The minimum balance you need to stake at least 365 times per year (once a day on average) is
365 * Reward size / Percentage(setting the above to 1).
As a rule of thumb we can assume that 50% will be staking, so for POS 3 the numbers will be better (higher or lower) by a factor of 2 if you stake 24/7, and will be about accurate if you stake 12 hours a day.
tbd.