Liquid Proof of Stake (LPoS)
The term Liquid Proof of Stake (LPoS) sounds a bit complex, doesn't it? Let's break it down to make it more digestible for the beginners. It's a type of consensus mechanism in the world of cryptocurrencies. A consensus mechanism is essentially how a cryptocurrency keeps all its digital records, called blocks, 'in check'. It ensures that all the transactions are valid and can be trusted.
What is Stake?
Before we dive into LPoS, we need to understand what 'Stake' means in this context. 'Staking' is when you lock some of your cryptocurrency for a specific period of time to assist in the network's operations like block creation, transaction verification, and much more. As a reward for this, you may get additional cryptocurrency.
Proof of Stake (PoS)
To understand LPoS even better, let's clarify what Proof of Stake (PoS) is. PoS is a type of consensus mechanism that selects which blocks get added to the blockchain (series of transactions), based on the number of cryptocurrencies a person holds and is willing to 'stake' or keep locked up as collateral. People who are chosen to validate transactions and create new blocks in this approach are dubbed as 'validators'.
Bedrock of Liquid Proof of Stake
Now that we have an idea about what 'Proof of Stake' is, let's dive into Liquid Proof of Stake. LPoS is a refined version of PoS where holders of the cryptocurrency can delegate their participation rights to others within the network without transferring the ownership of their coins. Think of it as if you are lending your voting rights to a friend in an election while still owning the voting right itself. It's become popular because it offers the ability to secure the network while maintaining liquidity of the participant’s assets.
Advantages of LPoS
- Security: By giving the token holders the right to validate the transactions and the block, the system is thus well-protected against cyber attacks.
- Fairness: LPoS tries to make it more egalitarian by allowing for the delegation of stakes.
- Liquidity: In PoS, your stake (coins) were locked up for a certain period of time. However, in LPoS, you have the option to retract your delegation any time you like, thus giving the users more flexibility and freedom.
Hence, Liquid Proof of Stake (LPoS) is an innovation over the traditional Proof of Stake (PoS) mechanism, enhancing the security, fairness and liquidity of the system.