Staking Economy: Challenges and Solutions for Node Service Providers
If you search for the keywords of this year’s blockchain industry, Staking is definitely on the list.
*This article was originally published on InfStones on Sept. 23rd, 2019.
Staking includes several aspects: From an economic point of view, the staking economy is an incentive model that represents the public chain’s staking rewards mechanism; more interestingly, Staking also represents a new practice of community governance because there are both cooperation and competition between different nodes. Staking-as-a-Service (StaaS) service providers derived from Staking Economy have also become important players in the blockchain industry this year.
However, staking is not as simple as it seems. If the node service is not stable, it may not only lead to a crisis of confidence but also cause users to lose money due to slashing. The first slashing event occurred on the Cosmos network, causing a node to be penalized for more than 20,000 Atom tokens.
So, what are the technical challenges faced by the nodes and what might be the solutions?
First of all, it is worth noting that security is not equal to reliability in the field of blockchain.
In the traditional Internet industry, security and reliability are not contradictory, and both can be improved by increasing system redundancy. However, for blockchain, if the design of redundant nodes is made, it is likely that multiple nodes will release the next block at the same time, resulting in double-signing, which was the cause for the Cosmos Slashing event. On the other hand, a single point of failure can occur if the nodes are not redundantly designed. If one node is offline, it will cause the entire system to collapse, which affects the reliability of the system. Therefore, it is a challenge to balance reliability and security.
The second thing worth noting is transparency.
Transparency is a very important factor in blockchain, and most projects will open-source their codes online. But due to the open-source codes, it is easy for potential attackers to discover and exploit vulnerabilities to attack the system. This poses new challenges for nodes running open-source code and the digital assets on such nodes.
Another issue is online migration.
Online migration means that a blockchain system can move from one place to another while releasing its own blocks, and its service is not affected during the moving process. This is comparable to changing the airplane engine in flight and changing the tires of the cars running on the road. However, such situations are often driven by demand. For example, upgrading and scaling both require the existing system to be migrated online. In the future, as more DApps are created, the frequency of online migration will also increase. At this stage, although the blockchain has much in common with the Internet, the development of blockchain technology will inevitably bring many new challenges. How to tackle these new challenges will play an important role in the development of blockchain.
In addition, with the development of the Staking Economy, the nodes are facing an ongoing price war.
The most direct way for nodes to achieve high returns is to get more votes. How do you get more votes? By reducing the commission rate.
This has caused a price war in the current Staking ecosystem.
However, reducing costs is direct but it is not the most effective way to get votes. In fact, in many public chains, the node with the lowest commission rate is not necessarily the node with the most votes, because Staking itself is not a simple deposit activity, but includes community governance.
At the same time, as time progresses, online transactions of the public chains will be gradually increasing, price wars will gradually taper down or even disappear, and the final victory belongs to nodes with the best reputation.
Price wars occur in most emerging industries. In the blockchain industry, node operators are willing to give up short-term benefits and compete for bigger markets. This shows everyone’s strong confidence in the future of PoS track and the Staking Economy.
From the perspective of the node service provider, the short-term effective way is to reduce the cost of the Staking service provider. Specifically, the way of letting machines instead of humans to manage the machines. The node service provider needs to set up a smart management system to achieve 24/7 automated upgrade, automated management, and self-recovery. In such cases, the node service provider can turn the uncertain future labor cost into a fixed machine overhead, which greatly reduces its operating cost.
In addition, if the node service provider finds that some important public chain consumes more cloud computing resources, it can conduct secondary development of the open-source code, analyze the high-maintenance part of the system, and restructure to reduce resource consumption.
From 2017 to 2019, the PoS market share saw a high-speed compound growth every year; in 2018, the PoS market share surpassed PoW for the first time; in 2019, with the rise of most emerging PoS networks, the PoS market share stayed ahead.
In the next three to five years of development, PoS will eventually become the mainstream consensus mechanism. The rise of PoS will inevitably require stable and efficient infrastructure support, and such infrastructure support will provide a solid foundation for broader applications of the blockchain. As an important link to the PoS mechanism, node service providers should not only keep updating their technology but also pay attention to their responsibilities in community governance in order to promote the healthy development of PoS and its community.
This article summarizes the speech from InfStones CEO Jonathan Shi at the penal discussion “New Consensus: Staking Economic Mechanism” of the 5th Blockchain Global Summit during Shanghai International Blockchain Week 2019.
About the author:
InfStones is built by senior cloud service and blockchain teams in Silicon Valley, USA. It has super nodes elected in well-known DPoS public chains including EOS, TRON, VeChain, Ontology, Elastos, IoTeX, Loom, GXChain, Bytom, etc., and mining nodes deployed in well-known PoS public chains including IRISnet, Cosmos, Tezos, Algorand, IOST, etc.
