Piecing it Together Pt. 3 — Forking Stellar
Exploring the characteristics that set DigitalBits apart from its predecessor Stellar.
DigitalBits forked the well-known Stellar blockchain in 2017, and launched MainNet in March 2018. Doing so allowed the project to leverage various technological advances that the Stellar protocol had achieved, including but not limited to:
- A dynamic, open-membership consensus mechanism (Federated Byzantine Agreement)
- High Scalability (10 000+ TPS capacity)
- Low Latency (2–5 second confirmation times)
- Low transaction fees (0.00001 XDB/XLM)
- Built-in decentralized exchange
DigitalBits has sought to improve upon certain aspects of the protocol to create a blockchain capable of spurring mass adoption. Apart from a different team and business model, DigitalBits has proposed four specific amendments, they are as follows:
- XDB, DigitalBits native token, is not subject to inflation
- Contrary to Stellar’s inflation pool, DigitalBits has created an algorithmic pool, that will disseminate certain tokens based on a combination of network and account usage. Four algorithms will dictate the release and distribution of these tokens.
- Currently under development, the Token Name Certification Service (TNCS) provides a framework to ensure that an asset issued on the DigitalBits blockchain actually represents its real-world equivalent.
- Currently under development, DigitalBits proposes a Node Operator Program, designed to incentivize network participants to host and maintain validator nodes, increasing the overall security and decentralization of the network.
Inflation & Algorithmic Dissemination
The Stellar protocol has a built-in inflation mechanism, distributing new lumens into the Stellar ecosystem at a rate of 1% per year. Each week, tokens are distributed to accounts that receive over 0.05% of the votes (1 lumen = 1 vote). Accounts holding over 0.05% of the circulating supply are able to successfully vote for themselves, doing so will retain the account’s holdings proportional to the circulating supply. At the time of writing, 0.05% correlates to approximately 9 607 789 XLM, valued at 1 003 014.80 USD, creating a very large barrier to participation. Accounts that do not receive tokens through this mechanism will hold proportionally fewer tokens and are subject to the effects of inflation.
There are methods to circumvent the capital requirement, in the form of inflation pools. An inflation pool is a central account that all members of the pool vote for in order to obtain the 0.05% vote requirement. Tokens will be delivered to this account via Stellar’s inflation mechanism, and then redistributed to its members. Some pools, such as Lumenaut charge no fees and payout 100% to the community. It is important to remember that the decision to conduct payouts and in what amount is still centralized and up to the discretion of the pool manager.
Additionally, the Stellar inflationary model does not promote active use of the token, especially from the perspective of larger accounts. If an account fulfils the capital requirement, it is advantageous for these tokens to be held and continue to accumulate inflation tokens, maintaining the relative wealth of large holders while subjecting smaller players to inflation if they choose not to participate in pools.
DigitalBits removed the inflationary pool and built-in inflation mechanism from its protocol, and focused on replacing it with redesigned tokenomics and an algorithmic pool. The DigitalBits blockchain does not subject its native token, XDB, to inflation. Instead, in accordance with network and account usage, tokens allocated to the algorithmic pool will be disseminated amongst network participants. The dissemination will follow pre-set algorithms, which will be discussed in detail further on in the “Piecing it Together” series. On a high level, this can be thought of as a “loyalty program,” where higher usage is rewarded with larger payouts — an inactive account, regardless of its holdings value would not receive tokens based on this system. In this manner, DigitalBits encourages the use of its blockchain, and does away with the hoarding of tokens to derive passive income.
Token Name Certification Service
The Token Name Certification Service (TNCS) will allow for the validation and authentication of asset providers. The TNCS will help to prevent malicious entities from issuing tokens that attempt to falsely represent brands or companies that they are not associated with. Service providers within the DigitalBits network may provide services similar to SSL certificate authorities that maintain a mapping between token issuers’ blockchain account addresses and their identities. Being able to prove that digital assets are effectively bound to their real-world counterparts is integral to the development of a token economy.
The TNCS is discussed in detail in “Piecing it Together Part 2: Assets, Trustlines, Anchors & the T.N.C.S.” As a fork of the Stellar blockchain, assets, trustlines and anchors function in very much the same way. The proposed TNCS provides an additional layer of security and verifiability. Beyond trustlines, the Stellar protocol has not suggested a framework to certify asset issuers.
Node Operator Program
Both DigitalBits and Stellar engage open-membership systems, in which anybody is free to spin up a node to help support the network. Unlike Bitcoin, these protocols do not require complex mining hardware. Instead, a standard laptop capable of running the software is sufficient, significantly reducing the barrier to entry and consumption of electricity — however, there is still a cost associated with running the device and software. As it stands, the benefits of operating a validator node on either network are:
- participating in consensus and providing security to the network
- submitting transactions to the network without relying on a third party
- quicker access to ledger data
- setting up customizations of the business logic or API’s
- preserving and being able to directly access the history of the network by storing all past ledgers
- anchors on the network are able to provide token holders with a trusted node to submit transactions to and see the state of their account.
Businesses stand to benefit from increased performance resultant of being directly connected to the network. However, this significantly underutilizes the open-membership aspects of Federated Byzantine Agreement. In doing so, the inherent decentralization of the network is put into question, as only companies that plan to build upon the network setup nodes. There are no explicit requirements in terms of uptime or node maintenance. Additionally, running a validator node is still based primarily on altruism, where resources are expended for the overall health of the network, creating a barrier to entry and reducing the incentive for smaller players.
Similar to Bitcoin’s mining system, DigitalBits will be introducing a Node Reward Program to provide explicit incentives for the successful operation and maintenance of certain validator nodes. Approved nodes that are able to maintain proper uptime will be rewarded in XDB tokens. As this program is still under development, full details will be expanded on in the future. DigitalBits looks to encourage a high level of performance amongst the validator nodes that conduct consensus on the network.
