Decentralization is the underlying mission of CryptoBridge, and part of making this a reality is through efforts to educate newcomers. This is the first entry in a series of documents designed to increase the level of understanding around cryptocurrency and related blockchain projects in a straightforward and useful way.
Many who become interested in cryptocurrency begin with minimal degrees of understanding about how the assets they’re buying and selling actually work. While there are potentially disastrous risks for those that tread this path, it is often said that one of the best ways to learn about something is to get your hands dirty. Placing one’s finances into the arena of such a new, volatile and risk-laden technology motivates one to learn quickly, however — and that is a positive in the long run.
As newcomers take their first tentative steps in the cryptosphere, they learn about Bitcoin, what blocks are, and how they are found by performing proof-of-work. Then comes an awareness of other consensus algorithms, most often the second one being proof-of-stake. The two are entirely different means to arrive at the same end: providing consensus and preventing any double-spending of the asset.
In proof-of-work, miners are rewarded for securing the Bitcoin network through the use of computers which perform the calculations necessary to find blocks — they are providing a service (and receive a reward for it). In proof-of-stake, however, it is the possession of some quantity of the asset itself and the decision to leave it unsold that grants the privilege of providing security for the blockchain. Once one has invested in it, staking can prove that investment is still being held at any given time. It is this proof-of-stake that allows the person to accept the rewards for providing the service.
Proof of… what?
This brings us to BridgeCoin (BCO), the revenue-sharing asset of the CryptoBridge exchange. BridgeCoin can be staked on the DEX and holders are awarded payouts twice per month with BTC and BCO. It would be easy to conclude that BCO’s blockchain is secured by proof-of-stake… but it isn’t.
Let’s take a step back to July, 2017 where we may witness the announcement of both BridgeCoin and the exchange. Early in the first post we see that there are some specifics about mining BCO:
mining algorithm: scrypt PoW (pool mining)
total coins: 27 million
block reward: 256 coins, halving every month
block time: 60 seconds
difficulty retarget: 10 blocks
default port: 6333, rpc port 6332
Yet by the fifth reply in this thread the confusion around whether the coin is proof-of-work or proof-of-stake has already appeared. So, how is a coin whose issuance is created through mining able to be staked? The answer lies in a creative use of the vesting balance function available from the BitShares blockchain (upon which the entire CryptoBridge exchange is built).
Staking a Claim
A vesting balance is used to prevent the sell pressure posed by a BitShares worker potentially liquidating their pay, as this arrangement time-locks these funds in a semi-permanent way. Vested funds cannot be claimed (and therefore cannot be sold) until they are mature. In this way, vesting creates a financial stake in remaining a committed participant of the system.
While BitShares does use the delegated-proof-of-stake consensus algorithm, this vesting (or staking) does not actually have any on-chain function related to its security. It acts instead as a mechanism of incentive. So here we find the smallest overlap in the use of the term staking: both in the case of on-chain security as well as the vesting function… participants are prohibited from liquidating their funds.
Staking and Scarcity
In the case of BridgeCoin, the vesting function is used to incentivize holders to retain their coins. By allowing them to receive regular payouts related to the length of the time and amount of coins they choose to place into a vesting position, or stake. Staked BridgeCoins are temporarily removed from the circulating supply, and payouts incentivize continued holding — both of which create scarcity and upward pressure on price. These two features are the value proposition of BridgeCoin.
Being that all of the BridgeCoin that will ever exist have been mined already, there is actually no need to secure the blockchain with any consensus protocol. Instead, the intended final location for BridgeCoin is on the BitShares blockchain — and plans to deprecate the proof-of-work blockchain will be announced shortly.
We hope this explanation was useful in clearing away any confusing about the BridgeCoin blockchain, and invite any further questions you might have about our unique staking asset. You may also find the following page on our website useful, and of course all are welcome to join us in the #bridgecoin channel on our Discord.