It’s a baker’s life for me

being a Tezos validator

Arthur Breitman
May 25, 2018 · 6 min read

What is baking?

A baker becomes aware of its right to bake blocks a few weeks in advance. When it does so, it is expected to create a safety deposit that will be held for a few weeks. This safety deposit is referred to in the white paper and in various places as a “bond”. In a few other proof-of-stake systems, this deposit is a single static set amount staked by a delegate. In contrast, in Tezos, the deposit dynamically changes depending on the number of blocks a delegate is set to create.

This safety deposit ensures the honesty of the baker during the period around the block creation. If the baker cheats and attempts to propagate blocks on different branches, it is punished by losing its deposit. If a baker creates blocks on a losing branch, it merely forfeits its reward. A baker needs to explicitly try to create blocks on two different branches to be punished. If the baker successfully creates and propagates a valid block, it is rewarded with a block reward as well as some fees paid for by the transactions included in the block.

What is a roll?

What is endorsing?

All in all, every baker also participates in endorsing and vice versa. Baking and endorsing are part of the same activity and sometimes, “baking” can be used as a shorthand to describe both.

Why bake/endorse?

In practice: suppose 100% of tokens are baking or delegated to active bakers, and suppose a baker has received delegation for 1,000,000 ꜩ. They would need to hold about around 80,250 ꜩ, at all times, in safety deposits. They would receive about 55,000 ꜩ per year in block and endorsement rewards, not to mention transaction fees.

However, if only 40% of the tokens are actively creating blocks, this baker would create 2.5x more blocks. Thus, they would be needing around 200,625 ꜩ in deposits but would be receiving around 137,500 ꜩ.

These are rough back of the envelope calculations which do not take into account many factors like the cost of operating servers, the risk of not baking properly due to bugs or network disruptions, the possibility of baking blocks with lower priorities if some bakers are only partially active, the potential cost of attracting delegators, and other yet unforeseen costs and risks. Bakers should rely entirely on their own analysis of the Tezos protocol and network to undertake this activity and not on this high-level blog post.

Stake delegation isn’t just about baking though! Voting in the Tezos network is also done by delegates, so it is their responsibility to analyze proposals (or weigh several opinions) in order to select them. That said, going forward, these two rights could be unbundled.

What does it take to bake?

Bandwidth, CPU, and memory

Security

  1. DDOS resistance: malicious parties might try to DDOS a baker at the time when they are trying to bake a block. A smart baker covertly listens to the network, and inject their blocks from a variety of IP addresses that may be hard to attribute.
  2. Key protection: a malicious actor stealing a baker’s private key could not only get control of all the baker’s security deposit but also harm the network if they preferred wrecking havoc to earning tokens. A smart Baker will use a hardware security module, SGX enclave or hardware wallets to protect their keys for baking. There is already some support for doing this using the Ledger Nano S device.
  3. Preventing and mitigating intrusion: the Tezos node, the Tezos baker, and the Tezos endorser should probably run on a machine isolated from the network by at least another well secured machine which is patched regularly. Ideally, there would be no remote shell access to the machine running the baker.

Know-how

A good baker needs to understand the baking process inside out (or, for larger operations, have one person on staff who does) and be ready to get their hands dirty by examining the process and troubleshooting it.

A good baker also needs to be in touch with developers to make sure they are ready to apply security patches quickly if the needs arise. In the early days of the network, baking will not be a passive activity but will require active involvement in Tezos and a good working knowledge of its underpinnings.

Bakers should experiment with the zeronet and engage with the rest of the community on the matrix_channel.

Tokens

Since the right to bake blocks is known a few weeks in advance, it’s possible for a baker to try and buy (or borrow) tokens in anticipation of the required deposit. This possibility is key for bakers with a small amount of stake who only bake a block once in a blue moon and for whom the deposit may represent a lot more than 8.25% of their delegated stake.

To help bakers get started, the protocol initially ramps up deposits linearly from 0% to 8.25% over a period of six months. This ramp would give enough time to popular bakers to acquire the additional tokens they might need in order to bake all the blocks that they are allowed to bake. Delegates should monitor their treasury and be ready to react if they suddenly experience a surge in popularity.

For more information on baking and Tezos in general, check out the resources below:

tezos

Tezos: the self-amending cryptographic ledger

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