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glossary

Definitions and terminology related to cryptoeconomics, blockchain and distributed ledger technology.
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Leased Proof of Stake

Proof of Stake (PoS) is an alternative consensus mechanism from Proof of Work (PoW). The key distinction between the two methods is that, while both incentivize ‘miners’ (or ‘validators,’ as they are called in PoS models) to confirm and add transactions to the blockchain, their respective processes for doing so vary. In PoW models, miners’ ability to validate block transactions is determined by their hardware's computing power, and the miner who completes and adds the block first is rewarded with a block reward comprised of transaction fees and newly minted coins. In contrast, PoS models assign the task of validation in proportion to the size of one’s stake, granting those who hold the largest stakes the greatest opportunity to produce a new block; the chosen validator then receives a transaction fee if they produce the valid block or is penalized they fail to do so. For this reason, PoS grants a preponderance of power and monetary rewards to majority stakeholders without perhaps less consideration for smaller users.

Leased Proof of Stake (LPoS) aims to improve upon the traditional PoS model by allowing users to lease their stakes to other users (leasing is seen as risk-free, as owner’s retain custody), thus increasing the latter’s ability to produce new blocks. In return, the lender receives a percentage of the transaction fee earned by the validator. In doing so, these systems (such as Waves) aim to address the problem of centralization in traditional PoS models and allow all users to earn rewards. This extends the ability to participate in the network not only to minority stakeholders, but also to users running ‘lightweight’ nodes.

LPoS is extremely similar to Delegated Proof of Stake, in that users can delegate power to other users, and the extent to which they can do so depends on the size of their stake. The key difference between LPoS and DPoS is that, while the former allows users to borrow coins in order to increase their chances of being selected to produce a new block, the latter calls for the top 20 users (as ‘voted’ on by other stakeholders) to oversee the production of blocks; these 20 users are referred to as ‘witnesses’ and earn regular payments as long as they remain the highest voted users.