Polkadot and Kusama Relay Chain use NPoS consensus algorithm
NPoS is a blockchain consensus mechanisms. Consensus mechanisms, in simple terms, are algorithms that ensure all the nodes participating in a network are synchronized with same data and transactions.
Proof-of-stake minimizes the amount of computing labor required to validate blocks and transactions that ensure security of the blockchain . Proof-of-stake alters the way blocks are confirmed by native token owners' devices. The owners submit their currencies as collateral in exchange for the ability to validate blocks. Owners of staked coins are referred to as "validators”. A coin owner must "stake" a certain quantity of coins to become a validator.
Nominated Proof of stake is a type of scheme used to select validators who are allowed to participate in the consensus protocol. NPoS is a Proof-of-Stake variant that is utilized in Substrate-based Blockchains. The main actors involved in NPoS are: Validators and Nominators.
Validators are responsible for the network's infrastructure and operation. They are in charge of creating new blocks, validating blocks, ensuring finality, and ultimately ensuring the network's security. They must be responsive at all times and maintain a secure, dependable infrastructure. Furthermore, validators require tokens to back them up, which encourages them to follow the rules because a portion of these tokens may be taken away otherwise (called slashing). Validators are compensated for their services with incentives priced in the native token of the underlying network (e.g. ICY on ICE and ICZ on Snow).
Nominators are token holders who contribute to the network's security by supporting the validators of their choosing with their stakes (tokens). A nominator publishes a list of validator candidates in whom he/she has faith and stakes a certain amount of native tokens in order to endorse them. If some of these candidates are elected as validators, he/she divides the payouts or penalties on a per-staked-native token basis with them. Nominators, unlike validators, can have a limitless number of participants. As long as a nominator is careful in his/her selection and only supports validator candidates who follow solid security standards, his/her function is low risk and offers a steady source of funding.
This nominator-validator configuration provides high security assurances. It enables the system to choose validators with vast aggregate stakes far more than any single party's native token holdings and exclude candidates with little stake. In fact, it can be anticipated that a significant portion of total native token supply will be staked in NPoS at any one time. This makes it extremely difficult for a hostile entity to elect validators (since they must first establish a good reputation in order to obtain the necessary backing) and extremely expensive to attack the system (because any attack will result in large amounts of tokens being slashed).
Proof of authority is a type of consensus algorithm, which is used to validate transactions and blocks. It does so by choosing validators, who are authorized by the network to create new blocks. These validators are chosen based on their past performance, expertise and trustworthiness. PoA relies on nodes with high reputation, which are known as "authorities." These authorities are tasked with validating blocks and confirming transactions. To obtain this authority and the ability to produce new blocks, a node must reveal its identity and conform with certain standards of the blockchain. Validators run software that allows them to save transactions in blocks. The process is automated and thus, does not necessarily involve validators constantly monitoring their computers, but it does require keeping the computer uncompromising.
PoA is appropriate for both private and public networks, such as the POA Network, where reliability is distributed. Here, validators risk their reputations in exchange for the authority to validate blocks. The algorithm's concept is that instead of tokens, network participants stake their identities. This implies that, unlike other blockchain protocols, where anybody may join without revealing their identities, validators in PoA systems are well-known institutions that risk their reputations for the opportunity to validate blocks. This eliminates the need to address any monetary differences between validators and assures that all network participants are equally motivated to work for the success of their network.
At the time of this writing, SNOW and Arctic Network use POA(Proof Of Authority) consensus algorithm. Later they will use the some modified version of PoS to reach consensus among the network validators. This is achieved by using the consensus engine Aura provided by the Substrate framework, along with Cumulus extension pallet for Aura which makes the Arctic network compatible with parachains.