Breaking Down Xank’s Proof-of-Stake Consensus Algorithm
The principle guiding philosophy of Xank is that of meritocratic governance. To achieve this in cryptocurrency relevant terms, network consensus is created by engaging the network’s ‘most able and most willing.’ Unlike Bitcoin and Dash that use a Proof-of-Work (PoW) consensus algorithm, Xank has decided to deploy a Proof-of-Stake (PoS) consensus algorithm. Proof-of-Stake incentivizes those with the most merit to accomplish tasks in the network; thus forming a meritocracy.
Staking Nodes and Masternodes
There are two kinds of stakers in Xank’s PoS system that share 70% of the block rewards:
Staking Node — any node that validates transactions on the network and holds Xank coins in their wallet is part of the node software. They are also known as stakers on the network. The network’s default setting distributes 35% of every block reward to the stakers of the network. This is to incentivize active participation in the network.
Masternodes — is any node operator that maintains an active balance above 1,000 Xank coins and operates the required software needed to operate and maintain network operations such as PoS mining activities. These nodes are also known as voters on the network as their stake allows them to establish voting rights. The network’s default setting distributes 35% of every block reward to the voters of the network.
As mentioned, these nodes share 70% of the block reward incentive. By default, this share is equally split at 35% for each node type but under some network conditions, this split can vary as the two types of nodes exist in a Seesaw relationship.
The Seesaw Variable Reward Mechanism
The Seesaw Variable Reward Mechanism was originally implemented on the PivX Cryptocurrency network as outlined in their Purple Paper. Its aim is to achieve an optimum equilibrium between voters and stakers so the network doesn’t become permanently unbalanced.
The Seesaw logic is simple. As the masternode count on the network increases, the reward percentage that is allocated to them is reduced and the stakers’ reward is proportionally increased by the same amount. Although the masternode operation is important to the operation of the network, having an excessive amount of masternodes in operation could stifle the liquidity of Xank coins as each masternode effectively locks 1,000 Xank coins out of the circulating supply.
If the network becomes dominated by stakers, the Seesaw mechanism will tilt the reward balance towards the voters as they are the ones that undertake the extra cost, risk and time of operating the network’s mining software. In this phase, the block reward distribution reaches equilibrium when the network running costs are met. Having a variable reward mechanism allows for new equilibrium points to be reached as the network adapts to changes, such as when network hardware or bandwidth cost increases take place.
Masternode Voting Rights
Any masternode operator can establish voting rights on the network. Apart from maintaining the necessary hardware and software that is necessary for network operation, a masternode also needs to stake a minimum of 1,000 Xank coins. This is a minimum requirement to gain access to a seat at the table but does not give the operator an actual vote. In line with Xank’s meritocratic governance, voting power is acquired through meeting a minimum score on a voter-based reputation system.
We will cover the Xank Self-Sovereign Identity and Xank Reputation Index in a future post. In summary, each Voter will establish a Reputation Index Score which will be used to establish their voting weight. Voters are ranked according to the judgment of their peers. The higher the reputation score, the more weight their vote will achieve. This ensures that high rated operators have more influence over network spending and governance.
There are multiple factors that operators are judged on when establishing their reputation score. They broadly fall under three pillars which are outlined in the Xank Whitepaper and are Proof-of-Service (PoSv), Proof-of-Merit (PoM) and Proof-of-Social (PoSc) and are closely aligned with the guiding principles and ethos of the Xank network as set out in the Xank Constitution.
Operating multiple masternode does not entitle or allow the node operator any further voting weight.
“There is no upper limit to the number of masternodes an operator may acquire. A Self-sovereign Identity system will ensure that a masternode operator can only establish the power of one reputation weighted vote regardless of how many masternodes they have in operation… ”
excerpt from Xank Whitepaper
This means that a masternode operator can establish only one voting seat, regardless of how many masternodes they operate, and they can only do so by establishing a self-sovereign identity that is known and public to the network.
Staker Benefits and Responsibilities
Stakers simply need to run transaction validating node software and also hold a positive balance of Xank coin. The transaction validating nodes play an important role in the Xank ecosystem. By validating transactions, they are effectively watching that all masternodes are adequately serving the network with a true feed of the current state. By watching the enforcers of the network, they are providing a valuable function by adding a further layer of redundancy to ensure that all users of the network are receiving the true state of the network at all times.
The more stakers that run nodes, the more decentralized the network becomes. Their efforts are recognized at the protocol level and rewarded through a share of the block reward incentives. Each staker receives a percentage of the allocation of the block reward that is proportional to the amount of Xank coins they have staked.
Proof-of-Stake mining is not as resource wasteful as Proof-of-Work mining and doesn’t require the network miners to update their equipment every few months. It is also not subject to a 51% brute force hash-power mining attack. By getting network users to stake in the network, you require them to have skin in the game. This creates a more ethical environment in terms of how the network is governed.
The right mix of incentives can be deployed to keep the network governed by its most capable, by those that provide the most benefit to the network and aligns their own interests with the interests of the network as a whole. The Xank Proof-of-Stake algorithm, along with the Seesaw mechanism, provide the right mix of incentives to achieve meritocracy — to be governed by the most qualified and most network aligned.
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If you want to know more about Xank stablecoin, please read my introductory post — Inherent Stablecoin Challenges That Xank Is Set To Overcome.
If you want to see how Xank compares with other stablecoins, please read my other post — What are the requirements for Cryptocurrency mass adoption? — Infographic.