Staking, Explained

Jul 2, 2017 · 5 min read

Understanding PoS

Proof of Stake is a category of consensus algorithms for public blockchains, which Neblio’s algorithm is a part of. It serves a similar function to the proof of work which underpins the security behind Bitcoin, but has significant advantages in terms of security and energy efficiency.

It’s easiest to think about this in terms of a raffle. Everyone with NEBL tokens has many “raffle tickets.” Approximately every two minutes, one raffle ticket is chosen, and whoever wins gets awarded newly created tokens.

If you have tokens in your wallet that have not been spent for at least the minimum staking time (24 hours), you have some “raffle tickets”. Whoever has the most raffle tickets has the best chance of winning. To enter the raffle just make sure your wallet is staking, and it will enter the drawing for you every two minutes.

Before we can understand how many tickets each person gets, we’ll need to review a few important concepts.

What is staking ?

Staking is the process your wallet uses to validate transactions and award you with tokens. When your wallet is staking, it is checking transactions to make sure everyone who sends tokens actually owned those tokens and had the right to transfer them. If most of the wallets online agree that a transaction is valid, then it gets accepted by the network. This concept of consensus is essential to all digital currencies, and is what keeps the Neblio Network secure.

As a reward for keeping the network secure, every two minutes one online wallet is chosen to receive a stake reward on the tokens they own. Whoever has the most “raffle tickets” has the best chance of winning the award.

In Neblio terms, your raffle tickets are referred to as your “Weighted Token Age” or simply weight, and your weight is a product of token age.

  • Tip: How To Stake
  • In order to stake, ensure that your wallet is unlocked via the settings menu if it is encrypted. Your wallet will not stake if it is locked. If your wallet is not encrypted, (but it should be for safety!) you obviously do not need to unlock it first. By keeping your wallet open, it will stake automatically.
  • If you do encrypt your wallet (you should!), make sure to use a strong password that you will never forget. You cannot recover your password or tokens if you forget your password.

What is token age ?

Quite simply, token age is the age of your tokens. Imagine you get a new wallet and start out with zero tokens. On Monday, your friend sends you 5,000 tokens. On Wednesday, you decide to buy 10,000 more tokens and deposit them to your wallet.

Assuming it’s Thursday, you’ll have two groups of tokens. The first group of 5,000 has 3 days of token age, and the second group of 10,000 tokens has 1 day of token age.

When tokens are sent to another address or successfully stake (generate reward), their token age is reset to 0.

What is the network weight, your weight, and expected time until next reward ?

You may have noticed these terms if you hover your mouse over the icon resembling a stack of tokens in the bottom right corner of your wallet.

According to the Neblio Network protocol, approximately every two minutes there is a raffle going on, which will result in a single block being discovered.

The network weight can be understood as the number of tickets available for this raffle. In practice the network weight is the sum of “weighted token age” of all the tokens which are staking at this moment across the entire network. Now your total weight is the number of tickets you own which allow you to participate in this raffle. It is calculated by summing up all the token age of the tokens which are staking in your wallet.

Since different participants own a different number of those tickets, the more of them you own, the quicker you can expect to be a winner, this is the expected time until your next reward. Of course the raffle is completely random so this number is merely an approximation, it could be much higher or much lower than the expected time for you to actually win. But in the long run, those differences average out and you would see that the expected time is pretty accurate averaged out over many stakes (as long as you keep your wallet online 24/7).

Let’s now see how these things work in practice. Using the example in the screenshot to the right, the network weight is 26,410,075 and your weight is 754,067. According to what we explained above the expected time will be:

26,410,075 / 754,067 = 35.02 Blocks Until Reward
Since one block is created approximately every 2 minutes:
35 blocks * 2 = 70 minutes (rounded to 1 hour by the wallet)

Just to put things back in the context of PoS, winning a stake means discovering a block which will not only award you new NEBL but will also validate the most recent transactions for the network. That’s how you get rewarded for doing your part to secure the Neblio network!

What happens when I successfully stake ?

Every time you successfully stake tokens, you get a token reward based upon a percentage of the weighted age of that group of tokens.

Minimum Stake Age: 24 Hours
Maximum Stake Age: 7 Days

According to the Neblio Protocol, tokens begin to accrue weight after they have been idle in your wallet for at least 24 hours, and stop accruing additional weight after they have been idle in your wallet for more than 7 days. These limits do two things: The minimum age requires you to hold your tokens for a small amount of time so that no single person can buy tens of millions of NEBL and have them stake repeatedly for nearly every block. The maximum age encourages users to stake by opening their wallet (and hopefully leaving it open) frequently. One cannot acquire a large sum of NEBL, close the wallet for 6 months, and then open it to find their tokens have a huge weighted age, instead their token age would be the same as someone who had held their tokens for only a week.

Stake reward is paid on the weighted age instead of the calendar age. So if you have 10,000 NEBL which stake with a calendar age of one year (365 days) you’ll only get a token reward on 7 days. This is a great incentive to keep your wallet open and help secure the network.

Originally published at Neblio.

Neblio Blog

Blockchain. Simplified.