What is Ouroboros Proof-of-Stake?

Contrary to the Proof-of-Work (PoW), where mining machines verify transactions, charge transaction fees and spend much electrical energy in the process, Proof-of Stake (PoS) is a consensus reaching mechanism where nodes connected on the network does that work.

Those nodes belong to coin holders who lock their coins for staking and are, therefore, entitled to validate blocks on the blockchain and securing the network.

But what and why is that Ouroboros prefix there?

Ouroboros Proof-of-Stake

Ouroboros is a version of PoS which we will explain step by step.

In Ouroboros PoS the blockchain ecosystem is divided into epochs which last less than half a minute.

Epochs are divided into slots.

Slots are essential because every slot needs a Slot Leader who is entitled to produce a block and, figuratively speaking, place it into the slot given to him by the system.

Slot Leaders can be compared to PoW miners as they are the ones who chose which block gets integrated into the blockchain, and receive the reward for doing so.

To Elect a Slot Leader – Follow the Satoshi (FTS)

Slot Leader gets only one chance to place one block into the blockchain, and if they fail to do so, they will get the same chance once they are selected again.

Slot Leaders get elected by the random lottery called Follow the Satoshi (FTS) named after the creator of Bitcoin (BTC), Satoshi Nakamoto.

What FTS does is that it selects a random coin which has been locked for staking and makes the owner of that coin a Slot Leader with all the rights, privileges and obligations that come with the function.

To simplify, that means that the more coins one has locked for staking, the more chance he has to become a Slot Leader and earn rewards for securing the network.

Let’s Get More Technical – Phases of the Election

Since Slot Leaders hold so much power, the system has to exist which ensures that they are indeed chosen randomly.

To ensure that, Multiparty Computation (MPC) takes place, where so-called electors perform a computational “coin toss” which can be looked upon as the election.

The election is divided into three phases:

Commitment Phase

Elector creates a message with encrypted shares – commitment – signed with his private key and epoch number, with a public key attached, which everybody in the network can check.

Reveal Phase

Since every commitment has a unique value that can open it, that value is called the “opening,” which is put into the blockchain by the electors.

Recovery Phase

This phase ensures that every commitment has its opening. This is important because opening a commitment produces a “seed” needed for FTS to take place and select Slot Leaders.

Sounds Complicated? It Isn’t! It is Automatic.

Knowing all the technicalities is useful, but, in reality, all this is happening behind the scenes.

All that an average coin holder has to do is enable the staking option for a number of coins in his wallet and let the pre-programmed system do the work.

Ouroboros PoS is important because it is used by one of the most promising blockchain ecosystems in the industry, Cardano (ADA), as an attempt to perfect the PoS mechanism embedded into many blockchains.

Cardano’s success or failure will show us if Ouroboros is indeed a perfected version of PoS or a failure.