Polkadot is a blockchain project that aims to securely connect multiple blockchains and enable them to communicate and transfer data with each other. One of the key innovations Polkadot brings is its nominated proof-of-stake (NPoS) consensus mechanism.

An overview of How NPoS works in Polkadot

In regular proof-of-stake systems, validators get rewarded for creating new blocks based on the number of tokens they have staked. Polkadot takes this further by allowing token holders to nominate trusted validators to perform this block production work on their behalf.

The nominated validators then get a higher chance of being selected for block production, and they receive extra rewards from the nominators as compensation for running highly available and reliable validator nodes.

This incentivizes validators to provide excellent service and uptime since more nominators backing them leads to higher rewards. At the same time, nominators participate in staking rewards without having to run their validator infrastructure.

Polkadot's NPoS has key components such as nominator rankings, capped stake limits, and minimized risk through punitive incentives that make the network more secure and decentralized. The system encourages nominators and validators to cooperate in maintaining an honest and reliable network.

Learn more about Polkadot's Nominated Proof-of-Stake in this video:

Technical Implementation

Validator Selection: Validators are selected for block production based on a combination of their staked tokens (self-stake) and the total stake nominated. Higher stakes increase the probability of being selected.
Nominator Staking: Token holders can nominate up to 16 validators to stake their tokens. Nominators don't need to run validator nodes themselves.
Phragmen Election: Polkadot uses a sequential Phragmen election algorithm to determine the nominated validators and nominators who are selected to participate in staking rewards for each era (e.g. 24 hours).
Validator Pools: Each validator is part of a validator pool containing their stake plus stakes from all nominators who nominated them. Validators' payouts are distributed across their entire pool.
Staking Rewards: Rewards are split between validators (most of the rewards) and nominators (a smaller portion) based on their pooled stake's fraction of the total staked value.
Security Measures: Validators may face partial or full stake removal if they go offline, misbehave or attempt attacks. This ensures a reliable service.

Overall, Polkadot's NPoS design aims to promote shared stake in the community securing the network while optimizing rewards and minimizing the cost and operational burden on nominators.

Cover image by Wikimedia Commons