Leased Proof-of-Stake (LPoS)

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What is Leased Proof-of-Stake (LPoS)?

Leased proof-of-stake (LPoS) is a consensus mechanism used in blockchain networks that enables token holders to lease their cryptocurrency holdings to network nodes, often referred to as validators.

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These leased tokens are used to contribute to the security and validation of transactions on the blockchain.

Techopedia Explains

LPoS is particularly associated with the Waves blockchain, where the primary cryptocurrency in use is the WAVES token. Token holders stake and lease their WAVES tokens to secure the network.

The consensus mechanism is a variant of the popular proof-of-stake (PoS) protocol. In the traditional PoS system, validators need to stake more cryptocurrency to increase their chances of creating blocks.

However, LPoS simplifies this by allowing crypto holders with limited knowledge of blockchain technology to lease their coins to validators, thereby improving their chances of block creation.

Upon successfully leasing tokens, users are rewarded with a share of the transaction fees paid to validators.

Furthermore, LPoS automatically streamlines the process of becoming a validator, removing potential entry barriers. This inclusivity not only benefits users but also bolsters the network’s overall security.

How Does Leased Proof-of-Stake (LPoS) Work?

Leased Proof-of-Stake (LPoS) operates through the following streamlined steps within blockchain networks:

  1. Token Lease: Firstly, the participant who wants to lease their coins creates a ‘lease transaction,’ specifies the number of coins to be leased and the validator to receive the lease. However, the token holder maintains full control over their coins and can freely transfer or withdraw them anytime.
  2. Node Validation: The leased coins become part of the validator’s stake. Validators safeguard the blockchain network by verifying transactions and creating new blocks.
  3. Reward Distribution: As validators engage in block generation, they earn rewards in the form of transaction fees from the blocks they create, as well as newly generated tokens.
  4. Shared Rewards: The rewards acquired by validators are shared proportionally with all token holders who have leased their coins to these validators. This shared reward system creates a collective incentive for participants.

Moreover, leased tokens enhance the validators’ staking power, increasing their potential to earn more rewards and securing the blockchain network. This creates decentralized participation in network security.

Key Benefits of Leased Proof-of-Stake (LPoS)

Below are the major benefits of the LPoS consensus mechanism.

Benefit Description
Enhanced Blockchain Decentralization The LPoS work structure encourages wider participation in network validation, effectively reducing centralization. This enables users to contribute to the network’s security without requiring prior knowledge of manually operating nodes.
Reduced Entry Barriers The LPoS model allows token holders with smaller holdings to earn rewards by leasing to larger validators, as there is no minimum staking amount. Leasing to larger validators also improves their chances of creating blocks and earning a high proportion of transaction fees generated.
Optimal Security The involvement of more participants in LPoS networks translates into heightened security. Increased participation bolsters the network’s resilience against potential threats.
Passive Income Generation Token holders who lease their tokens can earn rewards, making LPoS an attractive avenue for generating income without actively engaging in the network validation process.
Retained Ownership Leased tokens continue to be under the control of the token holder, allowing them to maintain liquidity and exercise control over their assets.

How Are Validators Selected in Leased Proof-of-Stake (LPoS)?

In LPoS mode, the process of selecting validators to propose and validate new blocks in a blockchain system involves several steps.

1. Stake Weight

Stake weight serves as a measure of a validator’s influence within the network and is determined by the number of assets staked or delegated for network validation.

This metric is crucial in PoS-based systems, as validators with higher stake weights have a greater likelihood of being selected to validate transactions and create new blocks.

In LPoS, stake weight may also include tokens leased by users to validators. Participants with larger stake weights are considered more trustworthy contributors to the consensus process. The exact rules for calculating stake weight can vary among different PoS and LPoS blockchain networks.

2. Block Proposal

The block proposal process involves a validator suggesting a new block that contains a series of pending transactions to be added to the blockchain.

Validators, often chosen based on factors like stake or reputation, combine transactions into a block. This block includes a timestamp, a link to the previous block, the merged transactions, and broadcasted to the network.

3. Block Validation

After the selection of validators and the creation of new blocks, verification by the network is required. To do this, validators collaborate to authenticate the block and confirm each transaction follows the network rules before they are added to the blockchain.

However, the LPoS validator selection process differs from the proof-of-work (PoW) mechanism. The PoW validation involves miners solving mathematical puzzles to secure the network, which consumes high computational energy.

Leased Proof-of-Stake (LPoS) Alternatives

LPoS’ focus on decentralization and economic incentives is impressive. However, there are other alternative consensus mechanisms that offer unique efficiencies:

Consensus Mechanisms Features Blockchain Networks in Use
Proof-of-Stake (PoS) In PoS, token holders can stake their cryptocurrency to participate in block validation and earn rewards without the leasing feature in LPoS. Ethereum 2.0, Cardano, Polkadot, Tezos, and Algorand.
Delegated Proof-of-Stake (DPoS) DPoS merges PoS with a delegate system, where token holders vote for delegates who validate blocks. It’s known for its speed and scalability. EOS, Tron, Lisk, and ARK.
Proof-of-Authority (PoA) PoA relies on approved validators to validate transactions and create blocks.  Ethereum’s Kovan Testnet, VeChain’s Thor blockchain, POA Network, and Celo.
Proof-of-Work (PoW) PoW requires miners to solve complex mathematical questions to validate transactions and create blocks. It requires high computational power. Bitcoin, Litecoin, Bitcoin Cash, and Monero.
Proof-of- Space (PoSpace) PoSpace utilizes available storage space on a user’s device to validate transactions, promoting decentralization and eco-friendliness. Chia blockchain network.
Proof-of- History (PoW) PoH is designed to assist in PoS and PoA networks, offering a verifiable and unique timestamp for all transactions. Solana

The Bottom Line

The Leased Proof of Stake encourages decentralization and security in blockchain networks by enabling token holders to lease their assets to validators.

This consensus mechanism promises inclusivity as it allows network participants to access a wider audience, retain control of their leased tokens, and enjoy rewards without sacrificing network security.

Looking ahead, LPoS decentralization and economic rewards can propel hot-red adoptions and acceptance within blockchain systems, making it one of the most reliable consensus mechanisms for token holders and validators.

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Jimmy Aki
Crypto & Blockchain Writer
Jimmy Aki
Crypto & Blockchain Writer

A graduate of the University of Virginia, Jimmy previously worked for BeInCrypto, Bitcoin Magazine, Decrypt, Cryptonews and other major publications. Alongside writing for Techopedia, Jimmy is also a trained economist, accountant and blockchain instructor with hands-on work experience in the financial sector.