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Cardano: What is the Ouroboros Proof of Stake Algorithm

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The Ouroboros Proof of Stake (PoS) algorithm is arguably one of the essential parts of the protocol. The unique protocol has changed the way in which various network nodes achieve network consensus. Ouroboros itself has some historical significance as it was the first ever protocol to be used on a PoS algorithm which was efficient and secured.

PoS algorithms are rapidly becoming more popular than its predecessor, Proof of Work (PoW), mainly due to electricity concerns. Reports have confirmed that the PoW algorithm, as used in the bitcoin network, is costly and wasteful as a single bitcoin network transaction requires the same energy as 3.8 average American homes on a day. The mass electricity consumption, however, is essential for maintaining the bitcoin network. However, growing concerns over electric supplies and environmental concerns have encouraged researchers to create and implement more electricity efficient alternatives such as the Byzantine Fault Tolerant (BFT) as well as the PoS algorithm.

What is Proof of Stake?

PoS is a new method of approaching block creation. Traditionally, PoW algorithms used a lot of electricity so that a miner could crack certain complex algorithms to verify transactions. However, a PoS differs in that it enables a node to create a new block based on the nodes current amount of coins in their possession. Once a node demonstrates a positive stake, they are considered as stakeholders. In addition, once a node has successfully created a new block, they are referred to as slot leaders.

What is a slot Leader?

A slot leader is essential for creating new blocks on the blockchain and running the entire protocol. Slot leaders enjoy several responsibilities which include viewing transactions verified by other nodes, generate a block with a batch of transactions, assign every block with secret keys, and making it available on the network.

A slot leader is, in terms of functionality, comparable to a bitcoin miner, however, you have to be elected to become a slot leader.

The Difference Between Epochs and Slots

The Ouroboros protocol is different from others in its time measurement. The protocol divides the physical time into epochs and then subdivides those into slots.

A slot refers to a short period such as 20 seconds and has a single slot leader responsible for the specific slot. In turn, every slot leader is allowed to generate only a single block during their assigned slots.

This rule means that the number of slot leaders at any given time should be directly equal to the number of slots found in an epoch.

If a slot leader fails to generate a block during their slot, they forfeit the right to do so unless they are re-elected again to act as slot leader.

Slot Leader Elections

Slot leaders are chosen from a group of stakeholders on the network. However, not all stakeholders are considered eligible for electoral participation. Only the stakeholders with the most at stake (generally speaking the top 2%) are allowed to participate and are referred to as the electors.

During every epoch, an election is held to determine the slot leaders responsible for the next epoch. For example, while epoch A is taking place, the electors will determine the slot leaders for epoch A+1.

Theoretically speaking, any stakeholder can be elected to be a slot leader, however, the more stake a stakeholder has, the better their chances are of being elected.

Multiparty Computation

The electoral system, however, is not without faults, as it is subject to bias. In order to address this, the Ouroboros protocol has introduced a multiparty computation (MCP) system in order to promote fairness and introduce some randomness.

The MCP system allows every elector to basically choose their preferred candidates by using a coin tossing technique. After concluding the process, electors share their results with the rest of the electoral committee. This sparks discussion amongst the committee until they have reached consensus on their new slot leaders.

Honest Majority

Essentially, the Ouroboros protocol functions on the assumption known as the honest majority. The assumption holds that any major stakeholder owning a fair amount of the cryptocurrency is likely to be honest since they have obvious reasons for wanting the network to succeed. This diminished the occurrence of any adversary emerging on the network and ensures for a more robust blockchain in general.

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