PoS, Staking & Delegation

Proof of Stake

Proof of Stake (PoS) is a category of consensus algorithms for public blockchains that depend on a validator's economic stake in the network. In proof of work (PoW) based public blockchains (e.g. Bitcoin and the current implementation of Ethereum), the algorithm rewards participants who solve cryptographic puzzles in order to validate transactions and create new blocks (i.e. mining). In PoS-based public blockchains (e.g. Ethereum's upcoming Casper implementation), a set of validators take turns proposing and voting on the next block, and the weight of each validator's vote depends on the size of its deposit (i.e. stake). Significant advantages of PoS include security, reduced risk of centralization, and energy efficiency.

In general, a proof of stake algorithm looks as follows. The blockchain keeps track of a set of validators, and anyone who holds the blockchain's base cryptocurrency (in Ethereum's case, ether) can become a validator by sending a special type of transaction that locks up their ether into a deposit. The process of creating and agreeing to new blocks is then done through a consensus algorithm that all current validators can participate in.

There are many kinds of consensus algorithms, and many ways to assign rewards to validators who participate in the consensus algorithm, so there are many "flavors" of proof of stake. From an algorithmic perspective, there are two major types: chain-based proof of stake and BFT-style proof of stake.

In chain-based proof of stake, the algorithm pseudo-randomly selects a validator during each time slot (e.g. every period of 10 seconds might be a time slot), and assigns that validator the right to create a single block, and this block must point to some previous block (normally the block at the end of the previously longest chain), and so over time most blocks converge into a single constantly growing chain.

In BFT-style proof of stake, validators are randomly assigned the right to propose blocks, but agreeing on which block is canonical is done through a multi-round process where every validator sends a "vote" for some specific block during each round, and at the end of the process all (honest and online) validators permanently agree on whether or not any given block is part of the chain. Note that blocks may still be chained together; the key difference is that consensus on a block can come within one block, and does not depend on the length or size of the chain after it.

For more details, refer https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ.

Staking

Staking refers to the process of locking up tokens into a deposit to earn the right to validate and produce blocks on a blockchain. Typically staking is done in the native token for the network - for e.g. the MATIC token is locked up by validators/stakers in the Matic Network. Other examples include ETH in ETH 2.0, ATOM in Cosmos, etc.

Delegation

Delegation is the process by which token holders delegate their stake to a Validator pool. It allows token holders that do not have the skills or desire to run a node to participate in the network, and be rewarded in proportion to the amount of stake delegated.