Understanding the Core Functionality of Leased Proof-of-Stake

Those who understand crypto mining know what proof-of-stake means. However, Leased Proof-of-Stake or LPoS may not ring any bells for many. Well, this particular variant of PoS increases the chances of gaining assets. It totally rules out the need to go through the mining process. Moreover, it addresses some inherent issues while increasing the mining power. So, let’s understand this dynamic and unique model of the staking algorithm.

Nitty-Gritty of Leased Proof-of-Stake (LPoS)

Before exploring the turf of LPoS, let’s go through some basics first. In a Proof-of-Stake consensus mechanism, validators participate in a staking process. They do it to generate and validate transaction blocks. The trick is to have more assets on the chain to raise the chances of block generation. That’s where LPoS comes into the picture. 

Under this setting, token-holders can lease their assets to validator node operators. This increases the validator’s possibility of creating new blocks. The lenders of the tokens earn a share of the transaction fee paid to the validators. 

Step-by-Step Process of LPoS 

LPoS follows the same principles on which lottery works. Following the steps, anyone can participate in this process.

  • First of all, token-holders need to create a lease transaction. They do it by leasing coins to a node while specifying the amount and recipient address. 
  • The leased funds join a node’s pool while increasing the chances of winning. 
  • LPoS allows the leasers to join the consensus process giving way for larger nodes to generate blocks.
  • As the process begins, winning nodes validate transactions. They compile them into blocks and receive rewards in the form of transaction fees. 
  • In the end, node operators distribute rewards with leasers based on their investment. The higher the stakes, the more the rewards. 

Here are some points that potential leasers must keep in mind:

  • The leases can be canceled anytime depending on several factors. 
  • The token holder has complete control of leased tokens that never leave the hardware wallet. 
  • There’s no need to transfer the tokens to the said node, the holder only links the chosen nodes.
  • The holder or any other party isn’t allowed to trade or transfer the tokens.
  • Only after the cancellation of the lease, the holder can spend the allotted assets.

Notable Highlights of LPoS

The process involves a number of features that make it significant.

Balance Leasing– The users can neither transfer leased tokens to validators nor they can trade them. Using cold wallets, they can lease out their assets.

Decentralized– LPoS uses a peer-to-peer protocol and rules out third-party intervention. It terminates the involvement of the liquidity pool and divides the rewards on the basis of the staked amount.

Unpredictability– No one can predict which node will generate the next block. However, the bigger one has better chances.

Limited Tokens– LPoS does not allow the addition of more tokens as it only authorizes leasing.

Scalable Structure– The system also ensures high scalability of the network rather than bringing more applications.

Transaction Fee as Reward– While other blockchains offer block token rewards, LPoS issues transaction fees. 

LPoS is certainly very advantageous to token users. As a result, it is witnessing high adoption too. Two leading blockchains use this system and more are joining the club soon.

Steve Anderrson
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