What is Proof- of-Transfer and Stacking?
Blockchain is a digital record that keeps track of all transactions and information that are made by an individual. This mechanism was unused until 2009 by Satoshi who created the digital cryptocurrency Bitcoin. Bitcoin is the most secure, trusted mechanism in processing electronic payments.
Blockchain is a distributed leger that is open to anyone. Data is stored in blockchains called ‘blocks’, these blocks consists of three features;
1. Data – details of the transaction or information
2. Hash- this is equivalent to an ID that is unique to you
3. Hash of previous block- connects the blocks together to create the chain
It is difficult for data to be changed or tampered with once secured in a block. Inputted data creates a new block allowing transparency of information and prevents people from tampering the blocks. Nevertheless, there are still risks of tampering that can occur. To overcome this, blockchain uses a mechanisms called consensus algorithms such as proof of work (PoW) and Proof of Stake (PoS) making it hard for malicious activities to take place. To do this, blockchain uses a peer-to peer network where anyone is allowed to participate to verify new blocks, creating a consensus where nodes agree on validating a block. Blocks that have been tampered with are identified by the nodes and will be rejected.
What is Proof of Work and Proof of Stake?
PoW algorithm functions by all nodes solving a cryptographic puzzle, where the first miner to solve the puzzle receives a miner reward. However PoW is not environmentally friendly, as individuals are building mining farms that are using mass amount of energy and electricity as the more equipment (mining machines) people have, the higher chance of them receiving the reward.
In comparison proof of stake (PoS) uses less energy and electricity. To an extent, PoS is fairer as in PoW, wealthier people can afford to pay for high electricity bills and mining equipment’s. With proof of stake (PoS) this mechanism includes ‘validators’ that does not let people mine new blocks, but rather mint new blocks. Meaning that validators have to put a certain amount of coins into the network as stake (similar to a security deposit); the higher amount of stake will increase the validators chance to mint the next block. To overcome fraudulent behaviours, a validator will lose a part of their stake and penalised by ‘slashing’ their funds. PoS encourages people to set up nodes making the network more decentralised and secure.
So what is Proof of Transfer?
Blockstack Is an open- source decentralised software, building the next generation of a user owned internet on Web 3.0. Blockstack launched Stacks 2.0 using a new mechanism known as proof of transfer (PoX) to leverage Bitcoin’s security and trust on Stacks blockchain. Blockstack proposed a proof-of-burn (PoB) mechanism where Stack miners are utilising electricity in the same secure way that secures Bitcoin.
PoX adopts PoB and PoW concepts to secure a new blockchain allowing participants to engage in the consensus algorithm, helping to grow the new cryptocurrency Stacks Token ecosystem. To do this, PoX rewards participants Stacks Tokens (STX) for adding value to the network. This is done by incentivising individuals to be involved as miners, where they forward bitcoin currency to the stacks network for the chance to compete and add blocks to the network, in return of receiving STX. This is known as Stacking, encouraging miners to secure the network. Miners that are STX holders have an advantage over other miners for participating in the network.
PoX enhances Bitcoin in various ways such as:
- Securing Web 3.0 with the new smart contract Clarity. This allows developers to build and have control of their digital assets.
- Bootstrapping blockchains: PoX can resolve this by rewarding participants for using the mechanism with currencies such as $BTC. By reusing Bitcoin hash power instead of burning bitcoin electricity by apply a hybrid approach where half of the Bitcoin can be burned and the other half can be transferred to holders, as a result be an inventive for individuals to participate on the network.
- Security: stackers help to secure the network by running nodes to maintain the consistency of the creating secure chains.
- Global knowledge: Stacks blockchain incorporates three elements that does not currently exist in blockchain which are; knowledge of time, blocks and cumulative work, preventing and educating individuals about malicious behaviours on blockchain.
To conclude, as the information age is gradually moving towards a decentralised, user owned internet. The approaches Blockstack is creating and developing, are steps closer to growing towards a movement to allow a secure and user owned ecosystem within Web 3.0. As individuals are becoming more aware of reclaiming ownership of personal data, it is interesting to learn and develop my knowledge in the processes of the innovative thinking, as well as the applications and security of payment methods that is provided and built on Bitcoin and Stacks. There is still a vast amount of information to learn and the growth is a continuous process, these are just the steps of contributing to a decentralised future.
References:
https://www.youtube.com/watch?v=SSo_EIwHSd4
https://www.youtube.com/watch?v=SiKnWBPkQ4I&t=308s
https://blog.goodaudience.com/a-simple-introduction-to-blockchain-algorithms-ca05b9bcc32f
https://uploads-ssl.webflow.com/5e7b1a27d160ce49af1c24e1/5f1596b12bcc0800f3dcadcd_pox.pdf
https://academy.binance.com/en/articles/what-is-a-blockchain-consensus-algorithm#closing-thoughts
https://bitcoin.org/bitcoin.pdf
https://www.youtube.com/watch?v=ECMQdapdNyM
https://hackernoon.com/wtf-is-proof-of-transfer-and-why-should-anyone-care-wd2330p9
https://docs.blockstack.org/smart-contracts/overview
Nice introductory article... This blockstock technology sounds quite intriguing... How many users are currently using it to verify transactions?
ReplyDeleteHello Ignacio, thank you for your interest in my article.
DeleteTo answer your question, from my knowledge, there is no limit on the number of people who verify your transactions. These people are known as miners on the network.
Just for more context;
For example, if you purchase goods using bitcoin, miners on the Bitcoin network will solve the cryptographic puzzle I mentioned above in the article. If they are able to successfully solve the puzzle, they verify your transaction and store them in blocks. In return for successfully verifying the block, the miner is rewarded in cryptocurrency for their work. This process is similarly being adapted to the PoX mechanism to grow the Stacks Token ecosystem as well as evolving Bitcoin’s security and trust on stacks blockchain.
I hope this answers your question, feel free to ask any additional questions and hope you continue to follow my learning progress.
Much appreciated,
Steph