What is Staking economy?
‘Staking’ is actually derived from the word ‘Stake’.
For ‘Stake’ to start with, it refers to a sum of money invested in a business or a company, and the corresponding values and rights it brings about. To put it in a more general sense, let’s say, if you own a stock of a company, you are having this form of ‘Stake’ in this company. With this regard, the idea of ‘Staking’ is just right there on the surface, that is, an abstract representation of stake activities.
‘Staking’, against the backdrop of Blockchain, usually deals with the holders’ behavior to acquiring the rights of minting or system maintenance by themselves holding a certain number of tokens in pledge to a system by following the PoS/DPoS Consensus Mechanism while at the same time obtaining token returns. In fact, ‘Staking’ has already implied ‘collateral’, that is, the token holders need to clear their commitment to their behaviors when participating in Staking activities, and the corresponding cost will be the ownership of the staked tokens.
Staking itself is a very innovative economic cooperation mechanism. Some may claim that Staking is very much similar to the ‘stake’ in the corporate system, where shareholders give funds in exchange of stakes, make their own contributions, and receive deserved dividends. Yes, when the token holders stake tokens, they do need to obtain these tokens in the first place (usually purchase the initial share) before they can assume the rights of system maintenance and finally obtain the newly issued tokens or transaction fee income. From this point, Staking does share similarities with the shareholding system, but this idea has left no place for the most alluring point of the Staking economy — the sense of participation.
What makes the whole thing of Staking economy so vivid and vibrant is really the sense of participation of the token holders, an intangible value that adds to and precipitates deep through each project. We often say that the Blockchain has transformed the human collaboration system and supplanted it with a decentralized model which has never occurred in our history. It is right in this sense that Blockchain is viewed as a technical concept with far-reaching prospects. Thus, the true value of Blockchain technology is not how awesome its technical parameters are, but the very idea that has impacted and reshaped our way of collaboration.
After 5 years development of the public chain ecosystem, especially that featuring PoS and DPoS, we finally saw the rise of the Staking economy. This idea, truly historic and groundbreaking, marks the beginning of our market to revalue the understanding and exploration of the mode of collaboration, a big jump going somewhere even further to touch the soul of the Blockchain.
PoS brewed the Staking storm
So why has Staking economy successfully caught our eye in the first half of 2019?
Since the big bull market in late 2017 and early 2018, the entire 2018 has witnessed a market environment slowly cooling in twists and turns. However, we can still see that there is a big wave of PoS projects launched between 2017 and 2018 stepping online one after another. For those projects that have been launched in early 2018 or earlier, they now have also moved into a relatively mature phase after running for about one year.
Among these is the well-known star project Tezos. During its crowdfunding phase in 2015, Tezos topped as the largest ICO project in history with a crowdfunding of US $230 million. It was hence banked with high hopes by the market.
Tezos is a blockchain that can evolve by upgrading itself. Stakeholders vote on amendments to the protocol, including amendments to the voting procedure itself, to reach social consensus on proposals. A self-amendment mechanism allows Tezos to upgrade itself without having to split (“fork”) the network into two different blockchains. Projects running on it have adopted a technical architecture similar to modularity with the codes and algorithms behind the main chain protocol able to be selectively replaced, and the upgrade process remaining simple and clear.
Tezos uses the DPOS Consensus Mechanism and introduces into itself a random verification system. Holders of XTZ (Tezos native tokens) can become Bakers by staking a certain amount of tokens, and the blocks of the Tezos main network are randomly generated by the Bakers.
More interestingly, if you don’t want to participate directly in the baking, you can also entrust your XTZ to others for baking. Plus, such delegation does not involve the movement of private keys, and the security of holders’ assets can be technically ensured.
As star projects, Tezos and EOS have both directly boosted a wave of PoS/DPoS projects last year. Also, pure PoW projects are now very rare to see in the market place (perhaps only the farce of BCH is still on wooing the market attention). This also explains why the Staking economy is getting increasingly heated — the market is no longer so keen on the competition for computing powers, rather, it has turned to a playing field for more peaceful and collaborative node campaign and stake mining, things more appealing to participants. After all, this is the real win-win stage.
The soul of Staking: Token as a Collateral
The Staking mechanism is undoubtedly a win-win design for both project side and token holders, which is at least in its philosophy.
For the project ecology as a whole, Staking attracts holders to first lock in a portion of the token, participate in mining and then gain income. The project itself (or the public chain) will need to be maintained in order to ensure the normal operation of the main chain while avoiding unnecessary corruption and cheating.
A very subtle and clever logic is embodied here: Collateral tokens are generally required by the Staking mechanism, which serves as a simple but effective constraint. The hash computing power mining of the Bitcoin PoW mechanism, also, is a constraint, but way too expensive. Staking, in contrast, using the holders’ fear of losing their funds, has skillfully contained their might-go-wrong behaviors during the Collateral.
This is the soul of Staking. If you still can’t understand the meaning of it, let’s just put it in a simpler way:
1) Upon the public desire for interests, PoW guides miners to spontaneously investing in the computing power to compete for the gains generated by the whole system to achieve better security.
2) Upon the public fear for fund loss, the Staking mechanism of PoS/DPoS guides participants to volunteering to do the ‘right deeds.’ Because if not so, the participants are just losing themselves.
More importantly, the resources consumed by PoW will rise in proportion when the system grows to a considerably large scale. This certainly will be very terrible. And there can’t be the second Bitcoin due to the enormous resource consumption it demands. While the Staking, consuming resources in a more gentle and easier way, stands enough to maintain a fairly large Blockchain network.
Some Staking practices you may follow
Why do we need to focus on Staking-mechanism projects?
In a bear market, it is far better to go to the Collateral Token to gain the income than to simply hold the fund. Since the former can achieve huge cumulative returns in the long run. As a participant, not only can you ensure your assets not to be diluted by the additional issuance, but also you can gain insight into the community ecology of the projects involved. PoS/DPoS projects with active ecology are worthy of continued participation and test of the next bull market.
Therefore, I recommend here a few Staking projects that deserve attention. All of them are highly typical and representative in their own field and can be studied by investors and community enthusiasts.
NEO is a special variation of DPoS, which I think is very typical.
First, NEO uses the dBFT mechanism, which is quite different from the traditional PoS/DPoS. BFT is a consensus mechanism based on Byzantine Fault Tolerance with permission features. (BFT consensus works only when at least 2/3 of the participating nodes are honest ones, a trust requirement set for all nodes in the consensus participation.) However, NEO will by voting select and decide on the consensus that enables mutually trusted nodes to participate in the BFT. So, this is actually a variant of DPoS, sharing the same creed at the core.
Besides, NEO is among the few projects that adopt a two-tier token model. You will get GAS when you stake NEO to do the mining, and GAS as a secondary token can also bring considerable returns to participants.
· Ethereum and QuarkChain:
The reason why the two are mentioned together is that they both focus on whether PoW and PoS can coexist or switch to each other.
The technical shift from PoW to PoS is no longer something new to Ethereum, which was actually proposed two years ago. Many might think that Ethereum is past its prime, but I still insist that we pay continued attention to Ethereum, since it gathers the best team of developers. Moreover, the transformation to PoS, if successful, will bring about tremendous changes to the performance and ecology of Ethereum.
QuarkChain, however, is exploring a hybrid mechanism between PoW and PoS. You can roughly understand it as a PoW adjusted by varying PoS weights. That is, miners must stake certain number of tokens in proportion to their computing powers if they are to provide hash computing mining. This means that any malicious attempts to attack the main network must not only have enough power to initiate a 51% attack but also should stand ready to accept the huge number of tokens collateralized by the loss — which is obviously not possible.
LBTC is made special as a variant of the Bitcoin protocol. It explores the possibility of combining the traditional and stable UTXO mechanisms with DPoS.
So far, this technical solution is proved very stable. It is worth expecting that if LBTC also perfects the Staking ecology, what changes will it bring to such a payment-based network (you may understand it as a Lite Version of Bitcoin)?
This project is also worthy of our attention because its current revenue is still very high. This is right a strong stimulus for the practice of Staking economy.
LivePeer is a platform dedicated to graphic decoding by using idle resources. It is based on Ethereum and has for this reason gained a remarkable mass of users.
The ecosystem of LivePeer is so complex that it is not intended to describe here. It’s a Web3 media layer and a potential CDN network, which I think is quite interesting. As the only project we have listed here with a clear application orientation, you may look at by yourself how LivePeer brings together the power of nodes.