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Blockchain Complete Guide  

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Proof of Stake and Off-Chain State Channels

Proof of Stake

To add each block to the chain, miners solve a mathematical puzzle using Electricity and computing resources. As the chain keeps growing, so does the difficulty of the mathematical puzzle. Also, there is competition among miners to add a block which eventually gives them some sort of monetary benefits and transaction fee.

which need more computing power or takes more time to solve the puzzle.

In Proof of stake algorithm, there is no competition among the validators as a validator is chosen by an algorithm based on stake.

It is going to make the system faster because it checks who has more stake rather than who has the most hashing power. Also, there is no reward for adding a block to the chain, so the block creator takes a transaction fee, so they would be happy to increase the blocksize to insert more transactions. It would incentivize validators more.

Off-Chain State Channels

What if rather than each transaction happening on blockchain, we can make some transaction on the private channel between parties involved and save important states on Blockchain only.

With this, we can reduce the need for miners to validate each transaction that doesn’t need trust mechanisms.

State channel is a two-way communication channel between participants who are parties to the transaction. Normally these transactions would happen on the blockchain. This reduces transaction time since we no longer need miner like third parties to validate the transaction.

These transactions take place entirely off the blockchain and are cheap and very fast to execute compared to online payments

But what are pre-requisite for such transactions to occur?

  • A Segment of blockchain states is kept via smart contract which each participant involved in transaction agrees to.

  • Each participant will interact with each other without the need of miner

  • Entire transactions set is added to blockchain later.

When to close State Channels?

State channel can be closed as predetermined by the participant on the network. It can be decided on a number of factors

  • Time passed
    After the decided Time, State channel will close automatically

  • The total amount of transactions

After the total amount of transactions has crossed some specific amount, the state channel will close.

Practical implementation for state channels is left to developers. State channel is an elegant way to support micropayments.

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