The rise of the PoS mechanism can bring "new mining market" to the fire?

No mining machine can mine? In 2019, the new business of “no mining machine mining” is gradually gaining attention. This mining profit method is called “ S taking economy (equity economy) ”.

It was born out of the PoS consensus mechanism, and the money holders earned money by stake tokens. Unlike PoW (Proof of Work), miners rely on computational mining. The token in Staking mode is like a virtual ASIC miner. PoS miners rely on pledge tokens to maintain network security, package transaction information, and participate in community governance. Obtain the equity reward for the system's additional tokens.

2019 is undoubtedly the outbreak of the Staking economy. The sign of the outbreak was that the incumbent exchange Coinbase began to enter; the fund Polychain was dubbed “the bit of the PoS world”; according to stakingrewards.com, the total value of the tokens in the pledge state was close to $6 billion, equivalent to the current ranking on CoinMarketCap. The total market value of the fourth BCH.

This is not the cold meal of EOS, but the main online line of the pure PoS (pure PoS) public chain, which is represented by Cosmos and Tezos, which makes the PoS ecology appear new life: the monopoly of the super node is broken. The role of miners is being subdivided and diversified; at the same time, the prosperity of Staking's economy is also feeding back other industries.

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In general, compared to PoW mining, there is no need to dig the bottom mining machine and there is no need to rush to the electricity bill. Compared to DPoS, this is a good business that everyone can participate in, even without a server and can not make a profit. Is this really true? The complexity of this business, how much do we know? This article will start from the recent launch of Cosmos, taking you into the PoS mining on the tuyere.

Cosmos main online line draws attention

On March 14th, Cosmos officially launched its main network. This star cross-chain project almost attracted the attention of the entire blockchain circle, and also brought the new consensus mechanism of BPoS (Bonded PoS) into people's field of vision.

In this consensus mechanism, if the currency holders pledge the Cosmos native token Atom they own in the main network, they can get an inflation bonus of 7%-20% annualized rate .

Pledge is the first step in “mining”. There are two channels:

One is to become the verification node in the main network and poke its own token , but to become a Cosmos full node requires a certain server configuration and requires certain technical capabilities. If this is not the case, it may be punished, so it is recommended to trust the currency in the reliable equity pool, which is the second.

Second, to pay a certain fee, the voting rights are delegated to one or more verification nodes . The verifier is a bit like the EOS super node, a service provider who needs to pay enough money and energy to maintain network security to get block rewards.

In fact, for most currency holders, entrusting verification nodes is the most common and economical practice. The certifier, the pool of interest in PoS, is like a pool in PoW, which charges a certain percentage of fees.

The benefits and costs of pledge tokens are two factors that need to be considered.

The proceeds come from Cosmos's inflation incentives. In Cosmos, the annual inflation rate is between 7% and 20%: when the network pledge rate reaches more than two-thirds, the inflation rate will stabilize at 7%, if the pledge rate Less than two-thirds, the inflation rate will increase linearly until it is 20% stable. If not pledged, the value of the token held will be diluted by the issuance. It should be noted that tokens pledged on the network are not liquid.

This is the essence of “everyone can participate”. With the DPoS mechanism, most of the holders can only vote for BP (outer) candidates, and BP participates in the block; in PoS, the holders are also involved in the block by pledge, and also gain block income. – that is, inflation rewards .

The cost of the user comes from the handling fee and the potential Slash (cut, also known as the "tombstone mechanism") penalty.

On Cosmos, the verification node can set its own fee on the chain. At present, there is a big difference in the handling fee at the beginning of the main online line. According to the block browser, the handling fee is as low as 0% and as high as 25%.

Another thing to note is the Slash mechanism in Cosmos. If the entrusted verification node has intentional or unintentional behavior (such as dropped calls or downtime), both the verifier and the delegator will be penalized by Atom forfeiture. Among them, the verifier will be heavier, and even severely deprived of the verifier. Therefore, in addition to the handling fee, in order to reduce unnecessary costs, the security and stability of the entrusted node are also factors that need to be considered.

Different nodes will pledge different proportions of their own tokens on the main network. To a certain extent, it also means that the nodes are “one glory, one loss and one loss”. The higher the ratio, the more the confidence of the nodes in their own stability. high.

In other words, just as a miner wants to choose a mining pool, it is a delicate task to pick a node that is safe, stable, cost-effective, and good enough.

At Cosmos meetup, one of Cosmos's verifiers, Wetez Wallet founder Cajun, gave a list of six-point certifiers to consider: the number of tokens, reasonable fees, community contributions, team strength, Slash situation. And whether it is a Token fund, can be used as a reference .

However, the reality is that careful selection is often not the style of most holders, and node reputation is more important in considering factors. In order to recommend the excellent nodes that the future can trust, the Cosmos hosted a Game of Stake contest in front of the main online line, inviting the nodes to find the vulnerabilities and fix them for the test network. If you don't know the details of each node, then the winners are also a good choice. select.

Cosmos and its node friends

If the commission token is the primary gameplay, then the node that provides the proxy service is a high play option.

The same can be thought of as the super node of EOS. The difference is that there are too few super nodes in EOS and the operating cost is too high. According to the hardware threshold announced by the EOS team, the minimum hardware standard is Amazon AWSEC 2 host × 1.32 × large, 128 core processor, 2 TB memory, 2 × 1920 GB SSD, 25 GB bandwidth. According to industry insiders, the cost of using one server for one year is about 759,000 yuan. The monthly cost is about 66,300 yuan, but the actual cost will be higher.

In Cosmos, it has more seats than the EOS super node. The initial limit is 100, which can be increased to 300. The operation and maintenance cost is lower. In hardware configuration, Comos officially recommends server configuration with 2 core CPU and 6 GB memory. . According to a verification node, in fact, the monthly cost of a machine is more than 700 yuan, and if you want to optimize the node, you may want to do high defense – to prevent the server from being attacked, and also to do distributed sentinel nodes. When the server goes down, you must have the ability to open another server in an instant. But in general, the cost will be much lower than the former.

The reason for the high play choice is that in Cosmos, the cost and benefit of the verifier is more complicated.

After the Cosmos was launched on the main network, the Spark Pool was launched for the first time in the PoS mining service. According to team member Qiu Xiaodong, unlike the PoW pool, the cost of the PoS pool needs to contribute to the Cosmos ecology in addition to the construction and operation of the server.

Leo, the founder of Hashquark, specializing in PoS and DPoS mines, also explained that the contribution to the PoS ecology is the hidden form of the node, including community activity operations, personnel costs (development tools, submission proposals, popular science articles, etc.), which is beneficial to Establish node reputation.

In other words, the cost consists of two parts. The proceeds are also derived from two parts: the inflation incentives obtained from the pledge of the own tokens, and the fees for providing pledge agency services.

At the beginning of the main network, the low commission will play a role in attracting user commissions to a certain extent. Ka Yan recalled that a node business has adjusted the fee to 0, and the voting rate has increased significantly. However, it is not a panacea. Qiu Xiaodong said that the Starfire Pool has reduced the handling fee from 4% to 0%, but the effect is not In fact, in the top 15 nodes of Cosmos, 11 nodes have a handling fee of more than 10%. It is easy to see that the handling fee is not the deciding factor to attract users.

The verification node has more bindings with the ecological and prosperous security of the main network. It integrates the roles of “miners, verifiers, ecological builders, propagandists”, and also requires long-term investment, good enough wind control and business models.

However, it is worth noting that the token is locked during the pledge and there is a liquidity risk. Take Cosmos as an example. After you cancel your pledge, you need to wait for 3 weeks to unlock. This means that you can't stop loss in time or arbitrage in time. PoS pledge is more like a recharge of faith than a PoW miner can sell when he digs it.

In this regard, Qiu Xiaodong said that the risk is not as big as imagined. In addition to the tokens pledged on the main network, inflation incentives can be traded at any time. In addition, Cosmos also proposed a "dual currency system" solution, Photon is born to solve the lack of liquidity. However, Kathy also said that this program has not been determined, and there is always the possibility of being overthrown.

Another challenge facing Cosmos is centralization, and industry insiders joked that PoS mining is just turning PoW miners into capitalists.

The main network has not yet realized the transfer. According to the Wetez wallet article, on the Cosmos main network, the top 15 nodes have 80% of the voting rights, and the top-ranked nodes have a very high proportion of their own tokens. 90%, because most of the big nodes are big ICO rounds.

The small node hopes that the main network will open the transfer as soon as possible to dilute the currency held by the largeholders; but the stability of the main network still needs to be improved, so that the function has been postponed.

All in all, the pros and cons of participating in the Cosmos ecology.

PoS this business

Of course, Cosmos is only one of the PoS public chains.

There are many public chains with PoS as the consensus mechanism. There are nearly 90 PoS public links in the stakingrewards website. Among them, the Stake value ranks among the top five in the PoS public chain: EOS, Dash, Tezos, Cosmos, and NEM. Although the number is large, the core of Staking is similar.

In the Stake mode, there are several key concepts that are common to token holders, validators, delegations, staking, custodians, followers, and rewards.

Token is equivalent to a mining machine. According to the token holding amount and holding time of each guarantor (Staker), the billing right is determined. Staker is equivalent to a miner; Staking can be regarded as a process of voting for inflation rewards. The holder can Delegate its token to the verifier node to participate in the network consensus, and do not have to bear the overhead of running the full node. A sufficiently high pledge rate is necessary to ensure network security. This is different from PoW. The PoW network needs to have enough computing resources to ensure that a single entity launches 51% of the attack cost is high enough.

However, there is still a difference in seeking common ground.

According to the function and impact of the Stake model, Felix Lutsch, a research analyst at ChorusOne, divides it into the following forms.

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 issues block rewards. In the DPoS network, the token is voted for the super node. In order to participate in the network consensus indirectly, but do not participate in the reward distribution, see EOS, Bitshares, Lisk.

There are also some pan-PoS networks. The token determines the governance decision or acts on other network functions. The difference is that the token is not locked, and the holder is only involved in governance and cannot get revenue, such as MKR, 0x. The hybrid consensus is a consensus network of PoW+PoS, including Decred (DCR) and Casper FFG deprecated by Ethereum.

More representative of the Staking economy is Pure PoS. In its representative projects (Carnado, Tezos, Cosmos, Ethereum), the Stake path, threshold and Slash mechanisms are different.

In addition, the inflation incentives of each PoS public chain are also different. According to the statistics of 80 digital assets in the number chain rating, the current PoS public equity equity rewards range from 0.02 to 156.23%. If other influencing factors are excluded, The higher the inflation reward ratio, the higher the income. But the higher the equity reward, the better?

The Wetez wallet article pointed out that the current mature public chain inflation rate is not high. Taking Cosmos as an example, as the pledge rate reaches a certain level, the inflation incentive will fall back to 7%. In addition, the Ether Square from PoW to PoS The inflation considerations are only below 5%.

Fire node business

The development of Staking's economy has undoubtedly brought the business of the node. The upstream and downstream of the blockchain industry chain are all out of the way, and the number of node operators focusing on multiple PoS public chains has begun to increase.

On March 29 this year, a Coinbase Custody announced that it began to pay attention to the provision of Staking services to institutional clients, and Tezos as the first project of its service, rose.

This is not the first time Coinbase has entered. Just a month ago, Coinbase has invested in a $4.5 million seed round of third-party node operator Staked.us, which also includes Winklevoss Capital and Pantera Capital. According to reports, Staked.us helps institutional investors reliably and securely obtain 5%-100% of the combined revenue of encrypted assets through equity and loans.

Stakeed.us's Staking equity pool, which is dominated by various PoS public chain mining operations, is a feature of staking economic development. Among the 22 Staking equity pools included in the Stakingreward website, Stakinglab has the most extensive mining business. It has included 66 assets.

They are also favored by capital. In September last year, third-party node operators and wallet service provider Wetez received strategic investment of millions of RMB from Continue Capital and Nirvana Capital. In March of this year, Bison Trails, an equity pledge service founder, announced that it had received support from Galaxy Digital. $5.25 million in seed financing.

In addition to third-party node operators, cryptocurrency investment institutions are also entering.

The over one billion US dollars of Polychain's labs are dedicated node operators; NGC and X-Order jointly launched the equity service product NGC StakeX in early 2019. The latest news is back to institutional investors such as Fund, Jieshi Capital and GBIC. It has become its customer; in addition, Hashquark, which was launched in November 2018, and Tezos Capital, a capital of Tezos.

Qiu Xiaodong told Odaily Planet Daily that Polychain's labs have a bit of a mainland in the PoS circle. The operators affiliated with these organizations often have a first-mover advantage in the ICO period of the project because of their investment background. Polychain is Investors in many star public chain projects such as Nervos, Cosmos, Tezos, and Dfinity.

Under the slow progress of Ethereum's transformation of PoS, the mines also targeted the PoS equity pool early. When the appropriate PoS public chain appeared, the PoW mine pool dispute was also raging. Domestically, before and after the Cosmos main online line, the Spark Pool and the Fish Pond (one of the founders of the PoS mining project bitfish, Yuchi Lianchuang Wang Chun) have entered the Cosmos equity pool business. In addition, exchanges such as Huobipool, Cobo wallet, and Math Wallet and wallet vendors are also in place.

Who is more advantageous? Each word is held. PoW mining ponds believe that based on the PoW mining pool server operation and maintenance experience, there are many PoW miners entering the market; wallets and exchanges have a larger user base and lower drainage costs; investment institutions do not have institutional users.

Back-feeding blockchain ecology

After Cosmos, the excellent PoS public chain such as Carnado and Polkadot, which have not yet been launched on the main network, became the next target for the Spark Pool and Wetez Wallet.

The emergence of these new PoS public chains has brought more imagination to the Staking economy: the threshold of nodes is decreasing, and the roles are more diverse, leaving more room for users to choose; the scope of the audience is also expanding. From individual currency holders to institutional investors, Staking is a regular financial management of the currency market that is worth considering, or it can be supplemented with regular exchange wealth management products (such as a certain treasure).

In addition to the currency coins, Staking Economy is backing the other industries in the blockchain.

One, empowering the wallet and the airdrop ecology. Hashquark's leo believes that if the wallet is combined with Staking to empower the wallet business, "the tokens stored in the wallet, if used for mining, will have a fixed daily yield "; and for the airdrop business Leo said that because 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 very inefficient and blind because Unable to judge the actual situation of the address."

Both, some insiders have proposed an idea that the Staking economy may be creating a larger demand market for Defi (decentralized finance).

On the one hand, it is decentralized lending. As a hypothesis, the user borrows the PoS token at a lending rate of 1% and pledges it to the network to obtain a 5% annualized rate of return, which allows him to retain 4% of the proceeds. Even if the price of the token against the French currency fluctuates during the period, the user will receive the legal currency income, which is equivalent to avoiding the loss of the legal currency principal brought by the direct holding of the token.

At present, decentralized lending rates are not high compared to the high annualized interest rates in the PoS network. For example, based on Ethereum's live video platform Livepeer token APR annual inflation rate is more than 25.8%. But the most expensive asset that can borrow APR on the decentralized lending product Compound is 8.25%.

If the demand for investment returns increases, this difference will also drive the interest rate of borrowing. As the gap between borrowing rates and Stake earnings converges, the difference may also be an indicator of asset or online market sentiment.

Reference reading:

Proof-of-Stake Ecosystem 102: The End of the HODLÂ Meme

Crypto borrowing and stakingÂnetworks

"Classifying Staking Implementations: A Framework"

"Advantages of PoS algorithm over PoW mining"

Explain Like I'm Five: How does, exactly, Blockchain Work? Blocks, POW and POS mining made simple.

Wetez Public Commentary on PoS

"Billion-dollar pan-PoS ecology: What issues need us to seriously consider? 》

"Staking Economy is here! (with 80 digital assets Staking Yield statistics)

Tool website:

Https://stakingrewards.com/global-charts

Https://www.mintscan.io/validators

Text | Aloe

Edit | Lu Xiaoming

Produced | Odaily Planet Daily

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