cold staking

Proof of Stake (PoS) protocols are evolving as cryptocurrency traders and passive income seekers join the fast growing blockchain movement. Recently, one crypto business announced a new type of PoS called Trusted Proof of Stake (TPoS). This article will review what PoS is. Then, we’ll introduce this new TPoS technology and how it solves some of the problems of other Proof of Stake networks.

What is Proof of Stake (PoS)?

Proof of Stake works through a set of predetermined consensus rules that enable a blockchain network to operate. Users can stake coins on a PoS network, run nodes, help verify transactions, and earn cryptocurrency for successfully following the consensus rules and verifying legitimate transactions. By doing all these things, users benefit as well as the network.

Features of PoS systems

In a Proof of Stake blockchain network, nodes are run by users who are distributed across computers worldwide. There is no central authority or one entity in power in such a decentralized setup. The actual running of a node means you are running special software on a device and conforming to all the rules of the protocol.

Nodes compete with other nodes to complete blocks of verified transactions for that particular blockchain network. In return, they receive a block reward of newly minted cryptocurrency coins. For instance, if you’re running an Ethereum node, you earn ETH. But in order for participants to help the network and earn, they must ‘stake’ coins. This essentially means holding them in a special wallet and keeping them there as long as they are running a node.

By having these nodes set up in a decentralized manner as described above, and by providing incentivization to keep the network operating smoothly and safely, PoS systems take the best of game theory and automation and combine them with a digital currency that can also be saved, spent or traded. The theory is that if users own the cryptocurrency themselves, as in their ‘stake’, then they are highly incentivized to keep the network running smoothly.

Challenges with PoS

There are many debates going on today as to which is better, PoS systems like Ethereum, Stakenet, and PIVX, or the Proof of Work (PoW) system which the Bitcoin network uses. Many proponents of PoW point to several inherent security problems with Proof of Stake networks:

  • Nodes with more staked coins have more chances to verify transactions. Thus they are able to earn more than those with smaller stakes, increasing their mining power.
  • There is still some degree of 3rd party trust with some PoS systems. That’s due to the fact that a small number of miners could essentially revive an older version of the blockchain. Because in the beginning stages of this new version there would only be a few miners, they could quickly accumulate a large share. This leads to ‘weak subjectivity‘ as under rules to help avoid such new chains require one node to essentially approve another.
  • Many PoS protocols require stakers to hold their coins online. (We’ll come back to this topic later in the article.)

Stakenet’s Trusted Proof of Stake is a new technology that helps improve on the PoS system. To get an idea of how it is different, let’s break down three types of PoS consensus mechanisms:

  • Delegated Proof of Stake systems, which are used by Lisk and EOS, utilize a specific set of privileged nodes which is in charge of validating blocks. Worries about this system stem from concerns about centralized governance and an associated difficulty to attain mass adoption.
  • “Bonded” Proof of Stake systems like Ethereum base the probability of getting approval for a block reward on the number of coins a node operator is staking.
  • The Trustless Proof of Stake network offered by Stakenet’s XSN protocol, seeks to take the best of PoS and adds cold storage security.

Stakenet’s staking protocol

What is cold staking?
Stakenet.io Homepage

Stakenet’s blockchain powers decentralized applications offer masternode and staking capabilities and runs on its cryptocurrency, XSN. Their blockchain is the first ever to provide security via its Trustless Proof of Stake consensus mechanism.

With the XSN blockchain, each time a block is complete, the algorithm automatically issues a block reward of 20 new XSN coins as follows:

  • 10% goes to the XSN treasury for continuing development.
  • 45% goes to masternodes, which we covered in our article, What is a Masternode and How to Get Started.
  • 45% automatically goes to the staking node that completes each block.

Variances

Stakenet has multiple forms of staking on its protocol, each targeting a specific technical skill level and varying minimum amounts of coin. 

For instance, they offer wallet staking, which requires running the XSN Core Wallet 24/7. Stakers win full block rewards when minting a new block. They can get going with any amount of XSN in the core wallet. 

Cloud Pooled Staking is a centralized service and is thus appropriate for smaller balances of XSN. With this type, stakers receive smaller, more frequent rewards since block rewards split up between all the stakes in the pool. Their 3rd option is Cold Staking.

What is Cold Staking?

This means that staking coins are kept in cold storage (offline). As with other cold storage offerings, once your wallet is ready, you can take it safely offline for storage at any time. Later, you can open it back up, even years later, to access all the rewards you have earned since being offline.

With XSN, cold staking happens by way of Stakenet’s unique technology: Trustless Proof of Stake, or TPoS. Of the three staking options available with XSN, TPoS offers the highest level of security. With this system, your balance stays offline, potentially decreasing the risks of hacks.

In general, users on PoS networks stake and hold aside the cryptocurrency in a similar way to holding a savings account. So participants all have a ‘stake’ in the proper running of the network while earning rewards to grow their balance.

At this time, users can participate in cold staking using TPoS with XSN’s Core Wallet. However, at some point in the near future, they will also be able to sync up directly with hardware devices like Ledger and the upcoming XSN Viper X. Essentially, by directly linking TPoS with these hard wallets, you’re transforming them into cold staking devices. 

How Does TPoS Work?

By utilizing “Merchant Nodes”, Trustless Proof of Stake provides the network security in your place. Stakers can either run the Merchant Node or hire another merchant to run the contract. In that case, you’d pay the merchant you hire an agreed-upon percentage of the block rewards you win.

When hiring out for a Merchant Node, the merchant itself has no access whatsoever to your funds. Additionally, you’re able to end the contract any time you wish. If that happens, all block rewards that you have won automatically go to your wallet. That is, except for the commission if you’ve hired a Merchant Node.

The goal of developing the TPoS capabilities is to provide a simple yet highly secure and fair solution that benefits both the network as a whole and the users who participate. 

How TPoS Improves Upon Proof of Stake (PoS)

The main problem with Proof of Stake consensus mechanisms is that maximum safety only happens when all coins are online and authoritative nodes are left out. With most PoS protocols, all stakers connect their full node to the blockchain to receive broadcasts about new blocks.

But with TPoS, stakes are able to validate transactions, operate within the network and help keep the blockchain secure all while their staked coins are in cold storage (offline). In this case, the number of validator nodes is not limited to a few authoritative nodes, or delegates (Delegated PoS). Additionally, just because a node is older does not mean it has greater influence within the Network, as with Leasing Proof of Stake protocols like Waves. 

The unique advantage to running a PoS node with XSN is that stakers can choose another node to do the staking for them. They can do this while maintaining secured ownership of their spendable coins. At all times, they keep their private keys private. 

Each Merchant Node operator cannot move funds (other than their commission for running the Node). They can stake the coins necessary for that address but cannot access funds otherwise. At all times, the owner of the staked coins may access their funds. The only exceptions are the commissions to the Node Merchant.

In the simplest of terms, those with less technical savvy are now able to stake nodes. They can do so by hiring a Merchant Node to run it for them. In a way, it’s similar to Stakenet’s “masternode as a service” model. In that system, people can run masternodes and earn crypto dividends without having to worry about the complex technical requirements.

For a more technical breakdown on how this system works, visit the Stakenet Whitepaper

The Future for TPoS

Future development includes adding TPoS contracts to Stakenet’s Masternode Network. Ease of use is paramount with blockchain applications. So the vision is to enable users to begin operating Masternodes with a few mere clicks. With this type of program, Masternodes will not only receive crypto dividends, but also revenue from the block rewards. 

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