Clear DefinitionsNominated Proof-of-Stake
1 min read
Pronunciation
[nom-uh-ney-tid proof uhv steyk]
Analogy
Imagine you want to invest in a company (participate in network security) but don't have the time or expertise to be on the board of directors (be a validator). In NPoS, you (a nominator) can choose to back one or more candidates whom you trust to be good directors (validators) by committing some of your investment (stake) to them. If they do well, you both get a share of the profits (rewards). If they misbehave, you both might lose some of your investment (slashing).
Definition
A variation of Proof-of-Stake where token holders (nominators) select a set of trusted validators to act on their behalf. Both nominators and validators stake tokens and can earn rewards or be penalized (slashed) based on validator performance and honesty.
Key Points Intro
NPoS enhances security and decentralization by allowing nominators to back validators with their stake, sharing risks and rewards.
Key Points
Nominators (token holders) select and stake their tokens behind validators they trust.
Validators are responsible for running nodes, validating transactions, and producing blocks.
Rewards are distributed to both validators and their nominators.
If a validator misbehaves and gets slashed, their nominators also lose a portion of their staked tokens.
Aims to encourage more widespread participation in staking and to select a secure and diverse set of validators.
Example
Polkadot and Kusama use Nominated Proof-of-Stake as their consensus mechanism. Token holders can nominate validators they deem reliable, and the network selects an active set of validators based on total stake backing them.
Technical Deep Dive
NPoS systems often use sophisticated algorithms (like Phragmén's method) to select an optimal set of validators from the pool of candidates, aiming to maximize the total amount staked and distribute stake relatively evenly among selected validators. This helps prevent stake centralization on a few validators. The shared risk through slashing incentivizes nominators to carefully choose trustworthy and competent validators.
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