Staking is a passive way to earn cryptocurrency and an alternative to mining. Most importantly, it is a less resource-intensive way to earn cryptocurrency. The main idea about staking is that participants can lock coins (their “stake”), and at particular intervals, the protocol randomly assigns the right to one of them to validate the next block. Typically, the probability of being chosen is proportional to the number of coins; the more coins locked up, the higher the chances.
The Staking Problem
All decentralized systems need a consensus protocol that governs the network whilst trying to achieve security, decentralization, and scalability. One of the defining characteristics of the decentralized systems is how they implement an algorithm that balances the transactions between security, decentralization, and scalability.
These are core features of the blockchain, Proof-of-Stake (PoS) systems achieve consensus by asking users to stake their funds into the platform ( a dedicated wallet or an exchange) in exchange for the rights to perform tasks on the network. The stakes are locked as collateral and can be lost in case of malicious behavior. Moreover, most PoS algorithms are only guaranteed to work under the assumption that no malicious user holds more than half of the total amount of tokens available. In other words, it is crucial that tokens are well distributed among the members of the community who participate in the consensus.
As PoS needs user engagement to work, projects have the need to carefully plan rewards systems to achieve a target participation rate. From the perspective of the user, staking is a problem of: “does the benefit of staking outweigh the risks and covers the time-value of my money? “A popular solution to reward users for staking is to mint new tokens and distribute them among stakers.
Here are some challenges to this method. Users need strong assumptions about their risk preferences to align the parameters of the staking function. Also, users have little information about the mining income they will get as it depends on the number of total staked funds. All these staking methods don’t allow for differentiation between players with different risk preferences and It is hard to determine a balanced inflation target.
Staking rights as Cartesi Solution to the Staking Problem
Cartesi aims to bring mainstream scalability and power to decentralized applications through a network of nodes. The CTSI token has been designed to incentivize Cartesi Node operators to engage with the system honestly and in an efficient way using staking rights. Through Proof-of-stake consensus System, CTSI is used to participate in the Side Chain’s Proof-of-Stake consensus system. Miners with the highest stakes have a higher probability of being selected to generate the next block.
Staking rights always have a final value of 1 CTSI, which is delivered to the account that purchased it at the precise time of their expiry. When users buy staking right for a price of less than 1 CTSI, the difference between the price paid and the unit value is proportional to their perceived opportunity of the staking right. In that case, the difference is minted and locked in staking together with the price paid, totalizing 1 CTSI staked per right sold. Without the staking rights, operators cannot be selected in the lottery that chooses the node that will generate the next block.
The staking Roadmap
In Q4 2020 (4th quarter of the year), the Cartesi team will release CTSI mining on Mainnet Ethereum. Mining becomes possible when the reference node operator software is stable and ready for distribution. The first version of the node operator will be a partial implementation of the Cartesi Side Chain that includes a functional PoS lottery system and the automatic gradual distribution of tokens from the mine reserve.
Notice that the Cartesi Side Chain itself is due in Q3 2021. The early distribution of node operators in 2021 is intended to bootstrapping Cartesi’s network of node operators, allowing the project enough time to achieve a reasonable staking participation rate and a broad adoption of node operators before the Side Chain is Mainnet-ready. With the Q4 2020 mining milestone, users interested in staking CTSI can receive mine rewards by running their own Cartesi node operators or alternatively by using mining pool services that Cartesi will partner with.
The auction system and the staking rights will be released in 2021 (more precise timeline to be announced later). That means that, in the period starting from the release of the mining on Q4 2020 until the release of the auction and staking rights, staking will be done directly with CTSI token deposits and not with staking rights. Another important aspect to emphasize is that PoS rewards will come strictly from the mine reserve during this period, which implies that there’s no minting of new CTSI and therefore, no inflation.
The Complete Overview: https://cartesi.io/CTSI_Macroeconomy.pdf
Cartesi’s Ecosystem Links: