This article is a summary of offline staking solutions. If you like to learn more about Trustless Proof of Stake click here.
1. Introduction
The following article deals with different coldstaking solutions and the meaning of the used blockchain architecture. To fully understand the meaning of trustless PoS (TPoS), developed by Stakenet, it is necessary to deal with the historical developments of different blockchain variations. Starting with the blockchain-family, based on bitcoincore, the consensus mechanism of the Proof of Stake (PoS), so-called minting, developed by Peercoin, will be presented first. After that, the Nxt-created PoS variant, the so-called forging, is presented, with which it was possible for the first time to stake offline, by lending the own balance to another node. To make this possible, the Nxt-Blockchain architecture has been redesigned from scratch and is based on its own core, the nxtcore. Based on the PoS solutions of Peercoin and Nxt, a further variation of the staking was then developed by Bitshares, the so-called delegated PoS, which also enabled offline staking via democratically elected delegates. Once you understand all these things, you can finally understand why TPoS is so special and what’s possible in a bitcoincore-based blockchain architecture with trusted offline staking.
1.1. Peercoins’ minting Proof of Stake
The Peercoin development team had the goal to find a consensus algorithm for a digital currency that does not require as much energy as the previously known PoW. For this purpose, the basic characteristics of the Bitcoin.core were assumed and, in some cases, slightly modified. The PoS in the new type of blocks is a special transaction called coinstake (named after Bitcoin’s special transaction coinbase). In the coinstake transaction block owner pays himself thereby consuming his coinage (In Bitcoin the coinage is used only for the prioritization of transactions) , while gaining the privilege of generating a block for the network and minting for PoS. Therefor a new minting process is introduced for PoS blocks in addition to Bitcoin’s PoW minting. A PoS-block mints coins based on the consumed coin age in the coinstake transaction. The protocol for determining which competing block chain wins as main chain has been switched over to use consumed coin age. The block chain with highest total consumed coin age is chosen as active chain (In Bitcoin the chain with the highest accumulated PoW is chosen as the main chain). The main criticism of Peercoin is the use of the coinage for the validation of the blocks, because unspent coins can become extremely old in the Peercoin blockchain. As a result, there is an incentive to temporarily deprive your coins of the blockchain, resulting in fewer stakers online to protect the network.
1.2 Nxts’ leasing Proof of Stake
Nxt is a 100% PoS cryptocurrency, constructed from scratch in opensource Java. Nxt’s unique PoS algorithm does not depend on any implementation of the coinage concept used by other PoS cryptocurrencies. A total quantity of 1 billion available tokens were distributed in the genesis block. Since the full token supply already exists, Nxt is redistributed through the inclusion of transaction fees which are awarded to an account when it successfully creates a block. This process is known as forging and is akin to the “mining” concept employed by other cryptocurrencies. Nxt transactions are based on a series of core transaction types that do not require any script processing or transaction input/output processing on the part of network nodes. These transaction primitives allow core support for an asset exchange, storage of small data, digital goods and account control features. There are two different types of nodes in the Nxt-network. The normal nodes and the hallmarked nodes. A hallmarked node is simply a node that is tagged with an encrypted token derived from an account’s private key; this token can be decoded to reveal a specific Nxt account address and balance that are associated with a node. The act of placing a hallmark on a node adds a level of accountability and trust, so hallmarked nodes are more trusted than non-hallmarked nodes on the network. The larger the balance of an account tied to a hallmarked node, the more trust is given to that node. If you like to stake offline, you need to lease your balance to a trusted hallmarked node. These accounts with leased forging power generate blocks more often and earn more transaction fees, but those fees are not automatically returned to lease accounts. With a bit of coding, however, this system allows for the creation of nearly trustless forging pools that can make payouts to participants. In the Nxt blockchain ecosystem, the trusted hallmarked nodes are responsible for block validation and all full nodes are responsible for the network services. The historic progression of the Nxt network has shown that hallmarked nodes with a high leasing balance have become more and more powerful over time. For example, 5 individual nodes control over 70% of the Waves network, which backend is nearly 1:1 based on the same Nxt.core.
1.3 Bitshares’ delegated Proof of Stake
Delegated Proof of Stake (DPoS) was created as new method of securing a PoS cryptocurrency’s network. DPoS attempts to solve the problems of both Bitcoin’s traditional PoW system, and the PoS system of Peercoin and Nxt. Therefor DPoS implements a layer of technological democracy to offset the negative effects of centralization. The fundamental feature of DPoS is that shareholders remain in control. Bitshares argue, that if they remain in control then it is decentralized. As flawed as voting can be, when it comes to shared ownership of a company it is the only viable way. Fortunately, if you do not like who is running the company you can sell, and this market feedback causes shareholders to vote more rationally than citizens. Every shareholder gets to vote for someone to sign blocks in their stead (a representative if you will). In Bitshares anyone who can gain 1% or more of the votes can join the board (In Lisk for example only the Top 101, in EOS only 21 delegates are on board). The representatives become a “board of directors” which take turns in a round-robin manner, signing blocks. These delegates are the only authoritarian individuals within the blockchain that can produce and broadcast blocks. Producing a block consists of collecting transactions of the P2P network and signing it with the delegates signing private key. Delegates are also responsible for creating all network services. The biggest problem with DPoS is that the delegates can also get together in groups. For example, the complete Lisk network is determined by 3 groups. As the delegates have the power and decide how much they give their voters from their blockrewards, a DPoS blockchain ecosystem turns to quickly “eat or die” mentality with less privacy.
1.4 Stakenets trustless Proof of Stake
One of the main criticisms of a PoS system has been that this is only maximally safe when all the coins are online and authoritative staking nodes are avoided. All previous staking and offline staking solutions could not meet these conditions. Stakenet has devised a solution to the problems being faced by users of decentralized networks today: Trustless Proof of Stake. TPoS essentially allows users to own a stake in Stakenet and use any other node to do the staking for them using their high bandwidth, continuous, connectivity, while not having to share any spendable balance or private keys with the node. Your funds are yours and yours alone. They will safely and securely grow over time and protect the network even while you sleep. This feature was created with the intention of allowing users to securely stake XSN coins in cold storage form a hardware device and produce, validate and move a blockchain at the same time. Increasing security for both the network and the user.
Stakenet was created to make an ecosystem that allows easy and secure offline staking to increasing security for both the network and the user. For this purpose, the basic characteristics of Bitcoin and Peercoin were assumed and in some cases slightly modified. XSN uses the same core as Bitcoin and an adjusted coinage, like Peercoin for the validation of new created blocks, down to 24h. The trustless staking is realized by the invention of so-called merchantnode. The requirements to set up a merchantnode offline staking, are zero. In contrast to all previous solutions, the merchantnodes have neither an advantage in the block generation and the blockrewards, nor a decisive influence on the blockchain. They have only the right, to validate the blockchain for you. Just imagine you are putting your money inside of a virtual bank that cannot fail, get robbed, go bankrupt, become insolvent or shut down. Just imagine you can withdraw or move 100% of your funds at any time, day or night, no questions asked, and no withdrawal limits imposed. With Stakenet you do not send over your money, you send the right to grow your money, for as long as you like.
1.5 Comparing TPoS with previous PoS solutions
“One of the main criticisms of a PoS system has been that this is only maximally secure when all the coins are online and authoritative staking nodes are avoided.”
As you can see now, Stakenet is the only staking solution, which ensures the maximum of decentralization, privacy and security in a non-authoritarian network, by providing high end services due masternodes for the entire ecosystem at the same time.
