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Proof of Stake (PoS) is a consensus mechanism in which block validators are selected based on the number of coins they are staking. In this case, the term staking refers to the act of validators committing funds to the system. So validators can only participate in the process of producing new blocks if they lock their coins.
The locked funds will then act as collateral, meaning that malicious validators will most likely lose their stake and be kicked out of the network. On the other hand, honest validators will be rewarded as new blocks are minted/mined/forged. Thus, we may say that a PoS blockchain achieves distributed consensus according to the economic stake that validators commit to the network.
The PoS scheme was designed as an alternative to the Proof of Work (PoW) and, as such, presents a few advantages and disadvantages. On PoW-based blockchains, like Bitcoin, the validators (miners) can only be rewarded if they find a valid solution for a cryptographic puzzle. Such a solution is what makes them eligible to add the next block of transactions in the blockchain.
The Bitcoin network is secure because the mining process is highly competitive and costly (requires a vast amount of computation power). However, this is also one of the limitations of the PoW model because there is a lot of wasted resources that can’t be used for anything else.
In contrast, blockchains that deploy the PoS model achieve consensus in a process that selects validators based on a combination of factors. The implementation of block selection varies, but it usually considers the staking size “coin age” (how long coins are being staked). In most cases, the block selection makes use of a randomization mechanism, meaning that validators take turns in the process of forging new blocks.
Unlike PoW, the PoS model requires very little computation power, and validators can secure the network using their individual machines rather than specialized mining hardware. As a consequence, PoS systems can provide increased levels of scalability, energy efficiency, decentralization, and security.
Along with the traditional PoS model, there are also customized variations, such as the Leased Proof of Stake (LPoS) and the Delegated Proof of Stake (DPoS) mechanisms. Other than that, we also have hybrid consensus systems, such as the Hybrid PoW/PoS, which combines features of both PoW and PoS models.
Radium Coin employs a custom, modified Proof of Stake algorithm employing a Spread Fees Protocol. The Spread Fees Protocol is a new approach to the classic Proof of Stake architecture for receiving a network reward in exchange for securing the network. Blockchain networks are maintained by many different individuals and each of these nodes deserves a little extra reward whenever someone records new data into the SmartChain. Historically, transaction fees were included as a reward in the block in which the transactions resided. The SFP dictates that this could be unfair, as wallets with more coins would be more likely to receive these blocks with higher rewards. With the spread fee protocol, fees are awarded back to the stakers slowly, over the subsequent 1440 blocks rather than all at once, ensuring that no one powerful staker can capture all the rewards. Most blocks that are staked will have a reward slightly higher than the stated block reward, which is a result of this protocol. The more the network is used, and as more transactions are sent, the extra rewards from spread fees will increase proportionally.