Proof of Stake, Staking & Delegating

What is Proof of Stake (PoS)?#

Proof-of-Stake is a system in which the blockchain network aims to achieve distributed consensus. Anyone with a sufficient amount of tokens can lock up their cryptocurrencies and the economic incentive lies in the shared value of the decentralized network. The individuals staking their cryptocurrencies validate transactions by voting on the next block while consensus is achieved when a transaction or a set of transactions in a block or a set of blocks receives enough votes to exceed the minimum required vote threshold. In PoS systems, votes are analogous to staked tokens.

Proof of Stake#

Proof-of-stake (PoS) is a category of consensus mechanism for public blockchains that depend on a validator's economic stake in the network to incentivize good behavior. In proof-of-work (PoW) consensus (ex. Bitcoin), participants are rewarded for solving cryptographic puzzles to validate transactions and create new blocks. In PoS, a set of validators take turns proposing and voting on the next block, and the relative value of each validator's vote depends on the size of its token bond, or stake.

A simplified PoS consensus process looks as follows:

  1. The blockchain keeps track of a set of validators.
  2. Anyone who holds the base cryptocurrency (ex. ETH in Ethereum) may become a validator by sending a specific transaction that locks their stake into a deposit.
  3. The creation and agreement on the inclusion of new blocks is then done through a consensus algorithm that all current validators may participate in.

There are many kinds of consensus algorithms, and many ways to select and assign rewards to validators who participate in consensus. You can read more about the different flavors of PoS here.

Staking#

Staking refers to the process of locking tokens into a deposit to earn the right to validate and produce blocks on a blockchain. Staking is typically done using the native token for the network. In Injective Protocol, the INJ token is staked by validators.

Validators#

A validator is a network participant who stakes network tokens and runs validator node software in order to help run the network's proof-of-stake consensus mechanism. Validators earn staking rewards for validating state transitions on the blockchain, and are subject to penalties/slashing for activities such as double signing, validator downtime, etc. Validators are responsible for verifying transactions within a block on the blockchain.

For Injective Protocol any participant can qualify to became a validator by running a full node to earn rewards and transaction fees. To enforce good-faith behavior, validators must lock up some of their INJ tokens as a stake in the ecosystem.

Those who are interested but cannot run a full node all the time can participate as delegators. Delegators participate in staking and earn rewards, increasing network security.

Delegators#

Delegating is the process by which a token holder delegates their stake to a validator pool in exchange for a share of rewards proportional to the amount of stake delegated.

Delegators are token holders who can not or do not want to run full node validator software, but have an interest in participating in the consensus mechanism. Delegators can stake their tokens with validators, strengthening the network and earning rewards in exchange for a small commission fee. Delegators may select which validator to stake their tokens with.

Sharing rewards with validators means delegators also share the risks. If the selected validator misbehaves, each of their delegators will be partially slashed in proportion to their delegated stake. Delegators play a crucial role in maintaining system integrity when selecting validators.

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