What is Nominated Proof of Stake (NPoS)?

What is Nominated Proof of Stake?

Nominated Proof of Stake (NPoS) is a traditional proof-of-stake consensus mechanism variation. In NPoS, validators are elected using a verifiable random function, with those holding larger stakes having a higher probability of being chosen. Once elected, these validators take turns in a randomized sequence to produce blocks for the blockchain. This approach is employed by blockchain protocols like Ouroboros Praos and BABE, aiming to balance decentralization and efficiency while ensuring network security.

How does Nominated Proof of Stake work?

Nominated Proof of Stake (NPoS) is a consensus mechanism in which a committee of validators is elected to produce blocks for a blockchain. Validators are chosen based on their stake, with those holding more having a higher chance of being elected. Once elected, these validators take turns in a randomized manner to produce and validate blocks.

Election of Validators

In NPoS, validators are elected using a verifiable random function. This means that while the process is random, others can still verify it to ensure fairness. The probability of a validator being elected increases with the amount of stake they hold.

Role of Validators

Once elected, validators are responsible for producing and validating new blocks on the blockchain. They take turns in a randomized sequence to ensure no single validator has undue influence or control over the block production process.

Stake-Based Selection

The amount of stake a validator holds plays a crucial role in NPoS. Those with more stake have a higher chance of being elected as validators. This stake-based selection ensures that those with a significant investment in the network are more likely to act in its best interests.

Randomized Block Production

The order in which validators produce blocks is randomized to prevent any single validator from gaining too much power or influence. This ensures a fair distribution of block production responsibilities and reduces the chances of any malicious activity.

Security Measures

NPoS is designed to be secure against various attacks. Requiring validators to have a significant stake makes it costly for attackers to acquire enough stake to launch an attack. Additionally, the randomized block production further reduces the chances of any single entity taking control of the network.

Difference between NPoS and DPoS

In both NPoS and DPoS consensus mechanisms, the validation process centers around two distinct network participants: one with the authority to elect the other. In DPoS, these participants are termed as “delegators,” while in NPoS, they are referred to as “nominators.”

A significant distinction between the two lies in the accountability system. In NPoS, both the nominators and validators must provide a stake as collateral, implying that both parties can face penalties or “slashing” for malicious activities. Conversely, in DPoS, only the validators are held accountable and face consequences for wrongdoing. Thus, in a DPoS framework, delegators remain unaffected by the malicious actions of their chosen validators.

​​The Mechanics of Nominated Proof of Stake

Nominated Proof of Stake (NPoS) is a consensus mechanism that emphasizes community involvement. In this system, token holders, known as nominators, have the responsibility of choosing validators they believe will benefit the network. This approach strengthens the network’s decentralization and ensures everyone has a stake in its success.

Validators, once chosen, have a significant role. They verify transactions, ensure their authenticity, and then incorporate them into the blockchain. Their role is essential in safeguarding the blockchain from any malicious activities.

A unique aspect of NPoS is its selectiveness. Only the chosen validators have the authority to add new blocks to the blockchain. This method not only makes the process more efficient but also ensures validators recognize the importance of their role.

Stakeholder Participation

Nominated Proof of Stake (NPoS) offers a novel approach to blockchain consensus. In this system, token holders, often passive in other mechanisms, actively participate as nominators. These nominators are responsible for selecting validators, who are tasked with verifying transactions and creating new blocks.

Within NPoS, the role of token holders evolves. They become nominators with the authority to shape the set of validators. The selection isn’t solely based on the number of tokens but also the trustworthiness and capability of the validators.

Nominators are integral to the network’s stability and security. They endorse validators by staking tokens, ensuring the network’s integrity. As a reward for their pivotal role and the risks they undertake, nominators receive a portion of the rewards that validators earn.

The NPoS mechanism underscores the significance of an active and engaged community. Token holders transition from mere investors to contributors, influencing the network’s direction and health. This involvement fosters a culture of accountability and collaboration.

Nominated Proof of Stake’s Main Features

Committee-Based System

NPoS, also known as “committee-based,” involves electing a committee of validators. The selection process uses a verifiable random function, and the chances of being elected are higher for those with a larger stake.

Random Block Production

Validators in the NPoS system randomly take turns to produce blocks. This ensures a fair distribution of block production opportunities among validators.

Utilization by Protocols

NPoS is implemented by certain blockchain protocols such as Ouroboros Praos and BABE. These protocols leverage the NPoS mechanism to achieve consensus and maintain the integrity of the blockchain.

Pros of NPoS

Enhanced Security and Democratic Principles

NPoS stands out for its emphasis on both security and democratic representation. Unlike traditional PoS, NPoS fosters a more equitable environment by empowering nominators to endorse trustworthy validators. This selection process often incorporates methodologies like election theory, game theory, or discrete optimization to guarantee fairness. Once validators are selected, NPoS further levels the playing field by uniformly allocating all stakes.

Equitable Accountability System

Prioritizing top-tier network security, NPoS introduces a comprehensive reward and penalty system for both validators and nominators. Unlike systems such as DPoS, which solely penalize validators, NPoS also reduces the stake of nominators who backed the erring validator. Such a structure motivates both validators and nominators to maintain integrity, thereby enhancing network security and minimizing collusion risks.

Cons of NPoS

Increased Risk for Nominators

While NPoS offers a democratic selection process, it also exposes nominators to heightened risks compared to conventional PoS systems. Nominators bear the brunt of their decisions, facing penalties for endorsing malicious validators. This could lead to a significant reduction or complete forfeiture of their stake. Moreover, the performance of chosen validators directly impacts the rewards for nominators, emphasizing the importance of judicious selection.

Limitations on Active Validator Selection

In NPoS, nominators can endorse a specific number of validators simultaneously. However, there’s no guarantee that all nominated validators will be part of the active set. For instance, in networks like Polkadot, nominators can endorse up to 16 validators if only a fraction of these are accepted into the active set, the stake is divided among the successful nominees.

Projects that use Nominated Proof of Stake (NPoS)

Polkadot

Polkadot employs the Nominated Proof of Stake (NPoS) consensus mechanism. In Polkadot’s NPoS, validators are elected to produce blocks, and the chances of being elected are influenced by the amount of stake they hold. However, what makes Polkadot’s system unique is the role of nominators. Nominators are participants who back certain validators with their own stake, effectively vouching for them. This system ensures the network remains secure, as both validators and nominators can face penalties or “slashing” for malicious activities. Polkadot’s emphasis on both security and democratic representation is evident in its NPoS implementation, fostering a more equitable environment by empowering nominators to endorse validators they deem trustworthy.

Cosmos

Cosmos is designed to facilitate interoperability between multiple blockchains, and it uses a variant of PoS called Tendermint BFT for its consensus. In Cosmos’s system, validators are chosen based on the amount of stake they hold, and they are responsible for proposing and validating new blocks. While Cosmos shares some similarities with NPoS, especially in the staking aspect, it doesn’t have the nominator-validator relationship seen in pure NPoS systems like Polkadot. Instead, Cosmos focuses on ensuring network security through the staking mechanism and emphasizes the importance of validators in maintaining the network’s integrity.

Conclusion

Nominated Proof of Stake (NPoS) represents a significant evolution in consensus mechanisms, aiming to balance decentralization, security, and efficiency. By introducing a democratic process for validator selection and ensuring equitable accountability, NPoS offers a unique approach to maintaining blockchain integrity.

While it presents advantages, such as enhanced security and a democratic validator selection process, it also comes with challenges, especially for nominators. As with any consensus mechanism, understanding its intricacies is crucial for participants to make informed decisions. As blockchain technology evolves, NPoS stands as a testament to the ongoing efforts to refine and improve decentralized systems for a more secure and inclusive digital future.