Staking Services and Why They Matter

The PoW Era

Over the years Bitcoin empirically proven itself to hold economical value, showed that humans value trustless transfer of digital property and that this property can at least in some cases replace money. The underlying consensus, the Proof of Work (PoW) invented more than decade ago turned out to become a standard for the years to come in securing majority of cryptocurrencies. If we take a closer look at the underlying economy of the PoW, we will realize that it’s based on assumption that trustless transfers hold value thus by introducing transaction fees and inflating the monetary supply the miners (nodes performing work and producing blocks) are incentivised to secure the network. In the very early days there was no huge entrance cost associated with becoming a miner thus everyone capable to afford a decent graphics card could join the fun in producing a “digital gold”. Growing gold rush resulted in a growing mining difficulty, quickly preventing individuals from solo mining and induced creation of mining pools allowing people to share their computational resources in order to receive rewards in more consistent fashion. Soon after introduction of ASIC’s quickly depreciated use of more easily accessible GPU’s and shook the space with growth of extremely efficient mining farms which almost entirely removed retail players from the mining game. Thus we have seen PoW mature and find its equilibrium, surviving twice the paradigm shift and maintaining Bitcoin network secure regardless of market conditions and technological changes in mining operations, proving the so important initial thesis.

The PoS Era

For a long time there was no clear and proven competitor in cryptocurrency consensus space against a PoW that could provide similar security or decentralization constraints, that is until 2014 when Tendermint become a very first company that came up with the first Practical Byzantine Fault Tolerant (PBFT) consensus, opening a gateway to the future of Proof of Stake (PoS). In 2017 Tendermint team began work on Cosmos Network project quickly gaining many followers of the PBFT-PoS based chains idea such as EOS, Zilliqa or ICON. New consensus and all its advantages quickly gained keen eye of investors accumulating millions of dollars in fundraised cryptocurrencies, proving market expectations of the change to come. It appears ecosystem realized that for blockchain space to grow and evolve the way how and where on-chain applications are deployed has to dramatically change. These days clients expect seamless user experience across all the platforms without any learning curve and for this reason we simply can’t see cryptocurrency space become mainstream unless average user will not be able to distinguish nor have to know that application he is operating uses blockchain underneath. What not so long ago seemed to be just a distant dream is now slowly becoming a reality thanks to the concept of Internet of Blockchains powered via Proof of Stake and Proof of Authority consensus engines.

The Economy and Why a Lot Has to Change for Nothing to Change

As we look deeper into what is there to come we will quickly realize many similarities to what we have already seen in PoW world. Miners in the past had to spend money on real life resources like GPU’s and electricity while now in the times of the PoS paradigm they are called delegators (or nominators) and have to spend them on purchasing scarce digital resources in order to participate in securing the consensus (electing validators). Mining pools where miners delegated their computational (scarce) resources can be compared to Validators where delegators have to commit their tokens (also scarce resource) to receive block and fee rewards. Mining on top of invalid or rejected block and creating a fork ends in loss of computational power and waste of resources while in case of delegated proof of stake in slashing event and irreversible loss of delegated tokens. At the end we quickly realize that although from technical standpoint PoW and PoS differ, the underlying economy can resemble each other to almost every degree.

The Outro

It could only be a speculation that history would repeat itself and breath new life into cryptocurrency space but one thing is certain, that a major technological change has to occur. My goal is to support this coming paradigm shift and there is no better way to do it then participate as Validator in the most major networks slowly coming to life regardless which one is going to become dominant or sought upon most.