How to Capitalize on Proof of Stake: Five Upcoming POS Projects that Could Shake Up Crypto
The launch of Cosmos’ mainnet earlier this month shined the spotlight on a long-standing debate within the crypto community – namely, whether the emerging proof-of-stake (POS) consensus algorithm is a superior alternative to proof-of-work (POW).
The launch of bitcoin a decade ago made famous the application of POW, but a new breed of distributed ledgers argues that POS is the best route moving forward. Perhaps more interesting is the fact that several notable blockchain projects, such as Ethereum, OmiseGo and ICON, have decided to transition to POW midstream to realize its benefits.
In the following, we’ll draw your attention to five POS projects to put on your watchlist. But before we do that, here’s a brief recap of the main differences between POW and POS.
Proof of Work existed as a protocol long before Satoshi Nakamoto applied it to bitcoin. Its main purpose is to deter cyber attacks by requiring miners to have large computational power to solve complex mathematical equations in exchange for a pre-determined reward. In this environment, the network’s miners compete to be the first to find a solution for each block problem.
Whereas POW rewards you for the amount of work you do, Proof of Stake rewards users based on how many coins they hold. Under POS, the creator of a new block is chosen in a deterministic fashion depending on their wealth or stake in the network. Instead of a block reward, they earn a transaction fee for every block they create. Theoretically, POS algorithms create incentive for participants to continue holding coins, thereby eliminating the “tragedy of the commons,” an economic scenario where users are incentivized to act in their own self interest instead of what’s best for the community.
Below is a breakdown of the core differences between POW and POS:
Five POS Projects to Watch
As Diar recently noted, a half dozen well known POS projects are set to go live this year. Over 70 projects already rely on some form of POS, with nearly $4 billion already delegated or exchanged. On average, 40% of their supply has been delegated to this format.
The five POS projects to watch for this year are as follows:
- Symbol: ADA
- Market Cap: $1.5 billion
- Market Rank: 11th
- 2019 Performance: +49%
- POS Launch: Q2 2019
Just before the new year, Input Output Hong Kong (IOHK) published a paper outlining the formal structure for Cardano’s proof of stake sidechains. The paper outlines the technical specifications for Ouroboros, the primary POS algorithm that is based on formal, peer-reviewed research. For Cardano, the primary catalyst for adopting POS is reducing energy consumption in achieving consensus. This is further outlined in the following document.
IOHK recently launched Cardano 1.5 on the mainnet, a significant milestone en route to Ouroboros. It is the last major release ahead of the Shelly development phase, which will see the implementation of the Ouroboros POS.
Also read The Long-Term Bullish Case for Cardano (ADA).
- Symbol: IOST
- Market Cap: $105 million
- Market Rank: 60th
- 2019 Performance: +65%
- POS Launch: Q2 2019
IOST, or the Internet of Services, raised more than $31 million back in 2018 with the aim of using those funds to create a more scalable blockchain solution. While IOST falls under the POW umbrella, it is going a step beyond by creating a proof of believability (PBO) framework to ensure that the verification process remains decentralized. (One of the core arguments against POS is the threat of centralization.)
POB divides all nodes on the network into two groups: believable and normal. This separation is confirmed through a two-step verification process that focuses on high throughputs and decentralization in order to be “believably-verified.”
IOST has the ultimate goal of creating a payment network that makes monetary exchange frictionless and cheap. This includes providing a throughput of 100,000 transactions per second. Read more: Why Investors Should Be Paying Attention to IOST.
- Symbol: AION
- Market Cap: $41 million
- Market Rank: 102nd
- 2019 Performance: -1%
- POS Launch: Q2 2019
Aion is a multi-tier blockchain network that raised more than $8 million through its initial coin offering (ICO). Its goal is to provide scalability, privacy and interoperability to any public or private blockchain. Although the project has largely flown under the radar since its ICO back in 2017, it has made significant progress over a short span, including successful launches of the mainnet and pool software.
Interestingly, Aion was created by Nuco Inc., a founding member of the Ethereum Enterprise Alliance (EEA). Nuco itself was created in 2016 by three Deloitte blockchain leads.
Aion achieves consensus for onchain transactions through a form of delegated proof of stake called proof of intelligence. While proof of intelligence is similar to POW, the computing power is used for actual utility on the network. Its long-term goal is to enable deep neural net capabilities and AI applications on top of the blockchain.
- Symbol: NAS
- Market Cap: $40 million
- Market Rank: 106th
- 2019 Performance: +51%
- POS Launch: Q4 2019
Nebulas is a decentralized service that seeks to provide a search framework for all blockchains. Through a proprietary algorithm called Nebulas Rank, it will determine the best users and applications across the blockchain spectrum. The project raised a swift $60 million through its ICO back in 2017 and was founded by Hitters Xu, the same leader behind Neo.
Nebulas seeks to combine the traits of POS and proof of importance (POI), a consensus algorithm first introduced by NEM that relies on a process called harvesting. By combining these traits, Nebulas has introduced the Proof of Devotion (POD) algorithm, which will combine the economic penalties of POS with the concept of account importance prevalent in POI. Account importance will be determined through the Nebulas Rank.
- Symbol: SOUL
- Market Cap: $1.6 million
- Market Rank: 660th
- 2019 Performance: -17%
- POS Launch: Q2 2019
Phantasma is the smallest project on our list with a market cap of less than $2 million. The SOUL cryptocurrency is built on the NEO blockchain with an emphasis on confidentiality and security. Its aim: to revolutionize content distribution by allowing users to control their information as opposed to third-party service providers. The project is being developed to address the critical areas of data management and content sharing. Read Project to Watch: Phatansma (SOUL).
Phantasma recently announced the features and tokenomics of its standalone blockchain set for release in April. It will be based on a proof of stake consensus with a dual token system – Phantasma Energy (KCAL) and SOUL. KCAL will be used to pay transaction fees on the network. SOUL tokens will be used to generate KCAL when the former are staked for a minimum 24-hour period. One SOUL token will generated 0.002 KCAL per day.
Keep an Eye on Rchain
- Symbol: RHOC
- Market Cap: $7 million
- Market Rank: 363rd
- 2019 Performance: -29%
- POS Launch: Q2 2019
Rchain has developed a cooperative governance framework to build a scalable blockchain solution that can be used to solve the world’s most complex challenges. The goal of the project is to make Rchain a public utility that can be applied to everything from data security to digital identity. The project raised nearly $30 million in a series of private sales.
Like other blockchain companies, Rchain faced substantial losses in 2018. The project that was being built to compete with Ethereum likely won’t beat the developer’s cryptocurrency to proof of stake or sharding but still offers value add in the form of blockchain concurrency (something Ethereum currently lacks).
RHOC has experienced a monumental collapse over the past year amid allegations that the RChain Cooperative is “operationally bankrupt.” The platform reportedly ran into financial troubles when it purchased a 5-year audio codec license from Immersion Networks. Developers seem to be losing faith in the project, as evidenced by its meteoric drop from top-50 cryptocurrency all the way down to 363rd.
That being said, the RChain Cooperative has sought to address the controversy by reassuring its community that it “is not bankrupt or even close to bankruptcy.” This includes eliminating less productive efforts (i.e., firing its marketing team).
If RChain can turn things around, it could provide investors with another POS-driven platform that was recently ranked among the most promising.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.