Text | Aloe Vera
Produced | Odaily
Produced | Odaily
Can mine without a mining machine? In 2019, the new business of "mining without mining machine" is gradually gaining attention. This method of mining profit is called "Staking economy (equity economy)".
It was born from the PoS consensus mechanism, and token holders earn income by staking tokens. Unlike PoW (Proof of Work) where miners rely on computing power to mine, tokens in Staking mode are like virtual ASIC mining machines. PoS miners rely on pledge tokens to maintain network security, package transaction information, and participate in community governance, thereby Obtain the rights and interests rewards of additional tokens issued by the system.
2019 is undoubtedly the explosive period of the Staking economy. The sign of the outbreak is that the old exchange Coinbase has begun to enter the market; the fund Polychain has been dubbed "Bitmain in the PoS world"; according to stakingrewards.com, the total value of the tokens in the pledged state is close to 6 billion US dollars, which is equivalent to the current ranking on CoinMarketCap Fourth in total market capitalization of BCH.
This is not a cold meal for frying EOS, but with the launch of the mainnet of a number of pure PoS (pure PoS) public chains represented by Cosmos and Tezos, new vitality has appeared in the PoS ecology: the revenue monopoly of super nodes has been broken ; The role of miners is being subdivided and diversified; at the same time, the prosperity of the Staking economy is also feeding back other industries.
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Cosmos mainnet launched to attract attention
On March 14, Cosmos officially launched its mainnet. This star cross-chain project has almost attracted the attention of the entire blockchain circle, and at the same time, it also brought the new consensus mechanism of BPoS (Bonded PoS) into people's vision.
In this consensus mechanism, if token holders stake their Cosmos native token Atom on the main network, they can get an inflation reward with an annualized rate of 7%-20%.
Staking is the first step in "mining". There are two types of channels:
One is to become a verification node in the main network and pledge your own token, but becoming a Cosmos full node requires certain server configuration and certain technical capabilities. If this aspect is not passed, you may be fined coins, so it is recommended to keep the coins in a reliable equity pool, which is the second type.
The second is to pay a certain fee and entrust voting rights to one or more verification nodes. A verifier is a bit like a super node of EOS, a service provider who needs to pay enough money and energy to maintain network security to obtain block rewards.
In fact, for most token holders, delegating to validators is the most common and trouble-free approach. The validator is the equity pool of PoS, just like the mining pool in PoW, which will charge a certain percentage of handling fees.
The benefits and costs of staking tokens are two factors that need to be considered.
The income comes from the inflation reward of Cosmos. In Cosmos, the inflation rate between 7% and 20% is issued every year: when the network pledge rate reaches more than two-thirds, the inflation rate will stabilize at 7%. If the pledge rate If it is less than two-thirds, the inflation rate will increase linearly until it stabilizes at 20%. If not pledged, the value of the token held will also be diluted due to additional issuance. It should be noted that tokens pledged on the network are not liquid.
This is the essence of "Everyone Can Participate". In the DPoS mechanism, most token holders can only vote for BP (block producer) candidates, and BP participates in block generation; in PoS, token holders also participate in block generation through pledge, and also obtain block benefits — that is, the inflation reward.
The user's cost comes from handling fees and potential Slash (reduction, also known as "tombstone mechanism") penalties.
On Cosmos, validators can set their own fees on the chain. At present, there is a big difference in handling fees at the beginning of the mainnet launch. According to the block explorer, the handling fee ranges from as low as 0% to as high as 25%.
Another thing to note is the Slash mechanism in Cosmos. If the entrusted verification node has intentional or unintentional malicious behavior (such as disconnection or downtime), both the verifier and the delegator will be punished by Atom confiscation. Among them, verifiers will be punished more severely, and even be deprived of their qualifications as verifiers. Therefore, in addition to handling fees, in order to reduce unnecessary costs, the security and stability of entrusted nodes are also factors that need to be considered.
Different nodes will pledge different proportions of their own tokens on the main network, which to a certain extent also means that the attitude of nodes is "all prosperity, one loss". The higher the ratio, the more confident the node is in its own stability. high.
In other words, just like a miner has to choose a good mining pool, choosing a node that is safe and stable, cost-effective, and caring enough is a delicate job.
On the Cosmos meetup, one of the Cosmos validators and the founder of Wetez Wallet, Ka Baa, gave a list of six consideration parameters for selecting a validator: the number of own tokens, reasonable handling fees, community contributions, team strength, and Slash status And whether it is a Token fund can be used as a reference.
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Cosmos and its node friends
If entrusting tokens is the primary way to play, then nodes that provide entrusted agency services are high-level options.
It can also be associated with EOS supernodes. The difference is that there are too few supernode seats in EOS and the operating costs are too high. According to the hardware threshold announced by the EOS team, the minimum hardware configuration standard is Amazon AWSEC 2 hosts×1.32×large type, 128-core processor, 2 TB memory, 2×1920 GB SSD, and 25 GB bandwidth. Some people in the industry have calculated that the cost of using a server for one year is about 759,000 yuan. In conversion, the monthly cost is about 66,300 yuan, and the actual cost will be higher.
In Cosmos, it has more seats than EOS supernodes. The initial limit is 100 people, which can be increased to 300 people; and the operation and maintenance costs are lower. In terms of hardware configuration, Comos officially recommends a server configuration with 2-core CPU and 6 GB memory . According to a verification node source, in fact, the monthly cost of a machine is more than 700 yuan, and if you want to optimize the node, you may need to do high-defense to prevent the server from being attacked, and also need to do distributed sentinel nodes , when the server goes down, it must have the ability to open another server instantly. But in general, the cost will be much lower than the former.
The reason why it is a high-play option is that in Cosmos, the costs and benefits of validators are more complicated.
After Cosmos launched the main network, Spark Pool launched the PoS mining service for the first time. According to team member Qiu Xiaodong, unlike PoW mining pools, PoS mining pools need to contribute to the Cosmos ecology in addition to building and operating servers.
Leo, the founder of Hashquark, which specializes in PoS and DPoS mining pools, also explained that the contribution to the PoS ecology is the hidden cost of being a node, including community activity operations, personnel costs (development of ecological tools, submission of proposals, popular science articles, etc.), which is beneficial to Build node reputation.
In other words, the cost consists of two parts. The income also comes from two parts: the inflation reward obtained by staking its own tokens, and the handling fee for providing staking agency services.
When the main network is first launched, the low handling fee can play a role in attracting user delegation to a certain extent. Kaba recalled that because a certain node operator adjusted the handling fee to 0, the voting rate ranking increased significantly; but it was not a panacea. Qiu Xiaodong said that Spark Mining Pool had lowered the handling fee from 4% to 0%, but the effect was not good. In fact, among the top 15 nodes in Cosmos, 11 nodes have a handling fee of more than 10%. It is not difficult to see that handling fees are not the decisive factor for attracting users to entrust.
Verification nodes are more bound to the ecological prosperity and security of the main network, integrating the roles of "miners, verifiers, ecological builders, propagandists" and other roles, and also require long-term investment, good enough risk control and business models.
But it is worth noting that the token is locked during the pledge period, and there is a liquidity risk. Taking Cosmos as an example, it takes 3 weeks to unlock after applying to cancel the pledge. This means that you can neither stop the loss in time nor arbitrage in time. Compared with the setting that PoW miners can sell it as soon as they dig it, PoS pledge is more like a recharge of faith.
In this regard, Qiu Xiaodong said that the risk is not as great as imagined. In addition to the token pledged on the main network, inflation rewards can be traded at any time. In addition, Cosmos also proposed a "dual currency system" solution, and Photon was born to solve the lack of liquidity. However, Kaba also said that this plan has not been determined and may be overturned at any time.
Another question Cosmos faces is centralization. Some people in the industry joked that PoS mining is just turning PoW miners into capitalists.
The main network has not yet realized the transfer. According to the statistics of the Wetez wallet article, on the Cosmos main network, the top 15 nodes hold 80% of the voting rights, and among the top nodes, their own tokens account for a very high proportion, exceeding 90%, because most of the big nodes are big players in the ICO round.
Small nodes hope that the main network will open transfers as soon as possible to dilute the currency holdings in the hands of large users; but the stability of the main network is still to be improved, so this function has been postponed.
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PoS is a business
Of course, Cosmos is only one of the PoS public chains.
There are many public chains that use PoS as the consensus mechanism. There are nearly 90 PoS public chains included in the stakingrewards website. Among them, EOS, Dash, Tezos, Cosmos, and NEM rank among the top five PoS public chains in Stake value. Although the number is large, the core of Staking is similar.
In the Stake model, there are several common key concepts of token holders, validators, delegation, staking, stakers/voters, and rewards.
Token is equivalent to a mining machine, and the bookkeeping right is determined according to the token holding amount and holding time of each pledger (Staker). Staker is equivalent to a miner; Staking can be regarded as a process of voting for inflation rewards. Entrust its token to the validator node to participate in the network consensus without having to bear the overhead of running a full node. A sufficiently high pledge rate is a necessary condition to ensure network security. This is different from PoW. The entire PoW network needs to have enough computing resources to ensure that the cost of a single entity launching a 51% attack is high enough.
However, there are still differences in seeking common ground.
Felix Lutsch, research analyst at ChorusOne, divides the Stake mode into the following forms according to its function and impact.
As can be seen from the above figure, Cosmos is one of the representative projects of Pure PoS (pure PoS). In Pure PoS, Stake directly affects the consensus and directly distributes block rewards; while in the DPoS network, tokens vote for super nodes In order to indirectly participate in the network consensus, but not participate in reward distribution, see EOS, Bitshares, Lisk.
There are also some pan-PoS networks where tokens determine governance decisions or act on other network functions. The difference is that tokens are not locked, and token holders only participate in governance but cannot earn income, such as MKR and 0x. Hybrid consensus is a consensus network of PoW+PoS, including Decred (DCR) and Casper FFG deprecated by Ethereum.
The more representative of the Staking economy is Pure PoS. Among its representative projects (Carnado, Tezos, Cosmos, Ethereum), the methods, thresholds and Slash mechanisms of Staking are all different.
In addition, the inflation rewards of each PoS public chain are also different. According to the statistics of 80 digital assets by the data chain rating, the current PoS public chain equity rewards range from 0.02-156.23%. If other influencing factors are excluded, The higher the inflation reward ratio, the higher the returns. But is the higher the equity reward, the better?
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Business with fire nodes
The development of the staking economy has undoubtedly sparked the node business. The upstream and downstream of the blockchain industry chain have broken through the layout, and node operators focusing on multiple PoS public chains have also begun to increase.
On March 29 this year, the news that Coinbase Custody announced that it would start providing Staking services to institutional customers attracted attention. Tezos, as the first project of its services, rose accordingly.
This is not the first time Coinbase has entered the market. Just a month ago, Coinbase co-invested in the US$4.5 million seed round financing of Staked.us, a third-party node operator. The investors also included Winklevoss Capital and Pantera Capital. According to reports, Staked.us helps institutional investors reliably and securely obtain a compound return of 5%-100% on encrypted assets every year through equity and loans.
Staking pools such as Staked.us, whose main business is mining various PoS public chains, are characteristic products under the development of the staking economy. Among the 22 Staking pools included in the Stakingreward website, Stakinglab has the most extensive mining business. 66 assets have been included.
They are also favored by capital. In September last year, Wetez, a third-party node operator and wallet service provider, received a strategic investment of millions of RMB from Continue Capital and Nirvana Capital; $5.25 million in seed funding.
In addition to third-party node operators, cryptocurrency investment institutions are also entering the game.
Polychain’s labs, which is in charge of more than US$1 billion, are specialized node operators; NGC and X-Order also jointly launched NGC StakeX, an equity entrustment service product, in early 2019. It has become its client; there is also Hashquark launched by Wanxiang Blockchain in November 2018; and Tezos Capital, the capital of Tezos.
Qiu Xiaodong told Odaily that Polychain’s labs have nodes in the PoS circle, which is the joke of Bitmain. Operators affiliated to these institutions often have a first-mover advantage by hoarding coins during the project’s ICO due to their investment background. Polychain is Nervos, Investors of many star public chain projects such as Cosmos, Tezos, and Dfinity.
Under the slow progress of Ethereum's transformation to PoS, mining pools have also targeted PoS equity pools early. When a suitable PoS public chain appears, the battle for PoW mining pools is also raging. From a domestic point of view, before and after the launch of the Cosmos mainnet, Spark Mining Pool and Yuchi (one of the founders of the PoS mining project bitfish is Wang Chun from Yuchi Lianchuang) have entered the Cosmos equity pool business. In addition, Huobipool, Cobo wallet, Math wallet and other exchanges and wallet providers are also in place.
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Feed back the blockchain ecology
After Cosmos, excellent PoS public chains such as Carnado and polkadot, whose main network has not yet been launched, have become the next observation target of Wetez wallet.
The emergence of these new PoS public chains has brought more room for imagination to the Staking economy: the node threshold is lowering, and the roles are more diverse, leaving more room for users to choose; the audience is also expanding, from From individual currency holders to institutional investors, staking is a kind of regular financial management in the currency market worth considering, or it can complement the regular financial management products of exchanges (such as a certain currency treasure).
In addition to using coins to generate coins, the Staking economy is feeding back other industries in the blockchain.
One is to empower the wallet and airdrop ecology. Leo of Hashquark believes that if the wallet and staking are combined to empower the wallet business, "the tokens stored in the wallet, if used for mining, will have a fixed and relatively good income every day"; as far as the airdrop business is concerned , Leo said that since the process of mortgage and voting can naturally determine the authenticity of the address, the airdrop business will be more refined and efficient, "The current airdrop service is to find an address and vote, which is actually very inefficient and blind, because It is impossible to determine the true condition of the address".
Two, some people in the industry have put forward a hypothesis that the Staking economy may be creating a larger demand market for Defi (decentralized finance).
On the one hand is decentralized lending. Assume that users borrow PoS tokens at a lending rate of 1% and pledge them to the network to obtain a 5% annualized rate of return, and then they can keep 4% of their own income. Even if the price of tokens against fiat currency fluctuates during the period, the user will still receive income in fiat currency, which is equivalent to avoiding the principal loss of fiat currency caused by directly holding tokens.
At present, compared with the relatively high annualized interest rate in the PoS network, the interest rate of decentralized lending is not high. For example, the annual inflation rate of the Ethereum-based live video platform Livepeer token APR exceeds 25.8%. But the most expensive asset that can be borrowed at an APR on Compound, a decentralized lending product, is 8.25%.
Reference reading:
Reference reading:
Proof-of-Stake Ecosystem 102: The End of the HODLÂ Meme
https://medium.com/chorus-one/proof-of-stake-ecosystem-102-the-end-of-the-hodl-meme-fdb79151480c
Crypto borrowing and staking networks
https://blog.coinfund.io/crypto-borrowing-and-staking-networks-e7d2d64a81a4
Classifying Staking Implementations: A Framework
https://medium.com/chorus-one/classifying-staking-implementations-a-framework-e8a5d0862fd1
Advantages of PoS algorithm over PoW mining
https://medium.com/@coinbag/advantages-of-pos-algorithm-over-pow-mining-cb0d461368d3
Explain Like I'm Five: How does, exactly, Blockchain Work? Blocks, POW and POS mining made simple.
Ten Billion Dollar Pan-PoS Ecosystem: What Issues Need Our Serious Consideration?
https://mp.weixin.qq.com/s/DIGaT4Xd0prXcWZFJsIj6w
Wetez's series of articles on POS
https://mp.weixin.qq.com/s/8biUluojJFbSD9NyCkDA7Q
Staking Economy is here! (With 80 digital asset Staking Yield statistics)
https://mp.weixin.qq.com/s/lQ82BsB45NqafdFR1aiT4Q
Tools website:
https://www.odaily.com/post/5137085
Tools website:
https://stakingrewards.com/global-charts
https://www.mintscan.io/validators
