Learn about Certificates of Leasehold Interest
LPoS is a type of PoS designed to increase mining capabilities, solve inherent problems in PoW, and improve other types of PoS, such as Delegated Proof of Stake (DPoS).
Ordinary cryptocurrency users may encounter the term “Proof of Stake” (PoS) when dealing with cryptocurrency staking, but what is Lease Proof of Stake (LPoS) and is there a connection between the two?
Yes, they are related because LPoS is just a variant of PoS system. Proof of stake is a key element of the blockchain consensus mechanism, where validators participate in staking to produce and verify blocks of transactions.
Validators on proof-of-stake platforms typically have to stake more cryptocurrency to improve their chances of producing blocks, and this is where LPoS comes in handy. Token holders without the technical knowledge or financial strength can lease their tokens to validator node operators, thereby increasing the validator’s chances of creating new blocks. In return, they will receive a portion of the transaction fees paid to validators.
In an LPoS environment, token holders can lease their shares or run full nodes. However, the more tokens a node stakes, the greater the chance of choosing to produce a new block. LPoS allows users to obtain mining benefits without going through the mining process.
How Proof of Leasehold Interest Works
LPoS works in the same way as a lottery, the bigger the stake, the greater the chance of winning a reward.
So how does a Certificate of Leasehold Interest work? The LPoS system follows a series of set processes:
- Set up a lease transaction: Token holders lease tokens to nodes and specify the amount and recipient address. Rental can be canceled at any time.
- Waiting for block generation: Lease funds are added to the node pool to increase the chance of winning the next block lottery.
- Participate in consensus: LPoS allows renters to join the consensus process; the larger the node, the greater the chance of generating the next block.
- Generate blocks: The winning node verifies transactions, compiles them into blocks, and earns transaction fees as a reward.
- Sharing rewards: Node operators allocate rewards to lessors based on their investment status. The higher the equity, the more generous the rewards.
Note that leased tokens never actually leave the leaser’s hardware wallet and remain fully controlled by the token holder. Holders only connect to the selected node and do not transfer tokens to that node.
Tokens cannot be traded or transferred by any party, including holders. Holders can only trade or spend allocated tokens after canceling their lease.
Key Features of Proof of Leasehold Interest
Some of the features of LPoS include decentralization, balance leasing, fixed tokens, and scalability.
The main features of LPoS include:
balanced lease
Lease tokens are not transferred to validators and cannot be traded. Users can rent their tokens and funds from cold storage or wallets.
Decentralization
LPoS distributes rewards based on the amount of the deposit, without the need for a mining pool. It is also very useful for blockchain governance as it uses a peer-to-peer protocol to prevent third-party interference.
Unpredictable block generation
There is no way to predict who will win the right to produce the next block. The only thing worth noting is that the greater the economic stake of a node, the greater the chance of winning the right to generate the next block.
fixed token
Mining will not add more tokens to LPoS as the system only allows token leasing.
Scalability
LPoS developers prioritized high on-chain scalability over second-layer applications.
award
Other blockchain systems offer block token rewards, but LPoS issues transaction fees to reward successful node operators.
The role of LPoS in blockchain verification
LPoS is a type of PoS used to verify cryptocurrency transactions in blockchain networks.
LPoS utilizes nodes or network devices to verify and authenticate blockchain transactions. Node-based verification uses computational randomness (depending on the financial stake of the node) to assign the right to verify blockchain transactions.
The PoS consensus algorithm relies on these factors to determine which node is best suited to validate transactions at any given time:
- Token Age: The longer a staked token remains unspent on the LPoS platform, the greater the chance of being chosen to validate the next transaction. Once the stake validates the LPoS transaction, its age is reset to zero.
- Stake size: The larger the stake, the greater the chance of validating the selection.
PoS uses passive cryptocurrency deposits rather than the raw computing power of mining hardware used in proof-of-work (PoW) systems, making PoS more resource-efficient than PoW.
Currently, two leading blockchains use LPoS. The first is the Waves blockchain, which uses the LPoS consensus algorithm to verify the state of the blockchain, allowing users to lease tokens to generating nodes and receive rewards distributed by these nodes. Finally, Nix uses a permissionless staking mechanism that allows users to stake through different third-party wallets, and the third party is responsible for the pledge.
Benefits of Certificate of Leasehold Interest
Many of the benefits of LPoS stem from the ability to earn rewards without the need for active transactions, increased chances of earning rewards by joining larger nodes, and inherent security features hard-wired into the LPoS process.
Participating in LPoS can bring the following benefits:
Passive investing
Users can participate in block generation and receive some rewards without actually participating in the block generation process.
Allow smaller investors to participate
The LPoS agreement contains minimum investment requirements for participation in the network. For example, Waves only allows nodes with at least 1,000 Waves (WAVES) to participate in block generation. Investors with insufficient funds can rent cryptocurrency tokens to more well-known nodes for a chance to earn rewards.
Difficult to manipulate
The LPoS generated balance rule calculates the minimum balance after taking into account the last 1,000 blocks of leases, thus thwarting manipulation attempts by moving funds between accounts.
Increase your chances of winning rewards
LPoS works by rewarding nodes with the most significant economic stake in the network. Therefore, leasing tokens to a larger node increases the chance of receiving rewards compared to if the lessor decides to lease individually.
All Rights Reserved
No one can trade or transfer the leased tokens (it won’t even leave the wallet), minimizing the possibility of losses.
Low barriers to entry
It does not require mining hardware to participate in verification.
LPoS Cryptocurrency Mining Alternative
LPoS alternatives that leverage PoS include Delegated Proof of Stake, Pure Proof of Stake, and Proof of Verification.
While technically not a method of mining cryptocurrency, PoS allows users to validate transactions and build new blocks on the blockchain. LPoS enables users to lease cryptographic tokens to nodes that validate LPoS transactions.
Several alternatives to LPoS allow users to take advantage of the PoS consensus mechanism:
Delegated Proof of Stake (DPoS)
Users can delegate the production of new blocks to representatives or witnesses through a democratic voting system, with votes weighted according to the number of tokens held on the platform.
Pure Proof of Stake (PPoS)
This is mainly used by the Algorand blockchain to develop decentralized applications (DApps). Users can vote for representatives, vote on proposals and propose new blocks.
Proof of Verification (PoV)
Its purpose is to reach consensus through staking verification nodes. The number of tokens staked by each validator determines the number of votes cast by the validator. New blocks are validated when validators with at least two-thirds of the network’s total votes vote on a block submission.
Hybrid Proof of Stake (HPoS)
Some LPoS protocols utilize the functionality of PoS and PoW. They use PoW to create new block house transactions and PoS to validate blocks.
Svlook
