8 A Brief History of Proof-of-Stake

welcome to the chorus one podcast in this podcast we explore the emerging open financial system facilitated by scalable interoperable blockchain networks tune in every Wednesday to dive deep into cutting-edge projects and protocols with course one team members and guests hi this is from Cora Swan and welcome to this week's episode of the chorus one podcast this episode will be quite a bit of a different format than the usual interviews and discussions we have on here in that in this episode I want to be talking about the topic that I find quite interesting and that is

the history of proof of stake so in this episode I first want to kind of talk about economic principles that exists in the real world today and have been existing for over thousands of years and how they kind of are similar to what we're seeing in proof of stake today and then in the second part cover how proofs take an actual cryptocurrency space has evolved from 2012 to where it is today and maybe also what we can expect and what is there to come so - let me start maybe I can talk to you about

what I think is very good analogy to proof of stake from the real world which is surety bonds so to explain what a surety bond is I want to use two examples from the early days of humankind which are both like almost 4000 years old so the first one is about a farmer that had to leave to join the king's army and he had to leave his farm behind and he wanted to make an agreement with another farmer that he will service his farm and they will share the revenues but he also wanted to make

sure that this farmer actually does it so he will take on a third party which was a merchant to serve as the surety that the second farmer takes care of the farm this took place it's like a oral communication in the 2750 before Christ but there's also another recorded history which is actually engraved on the tablets from Mesopotamia which is present-day Iraq that has been found like in the 19th century which depicts an arrangement about the payment of corn which was the currency at that time where there's also three parties depicted so these three parties

are the three constituents of a surety bond even till today and you call them the first party the obligee which is the person that is expecting some kind of obligation to be fulfilled in this case is a payment of corn then there's the second party it's the principal this is the part that is supposed to fulfill this obligation and then there's a third party which is the surety this is the part that needs to make sure or take over the obligation if the principal fails to deliver on the promise so he provides this what is

called a surety bond to the obligee that he will take over if the principal fails to deliver and basically lowering his risk of course in expectation of some kind of premium or interest in the second story the obligee is actually the Babylonian king donkey and this tablet that was found in Mesopotamia even was recorded by some professional notary where there are actually four witnesses inscribed in this agreement and since then there have been a lot of these tablets found from the Mesopotamian area and yeah I find it quite interesting that this thing has been existing

for so long and we're now seeing it in proof of stake so let me tell you what I mean if I say that surety bond is kind of similar to proof of stake basically what you can think of is mistake so the crypto currency that's being staked and then the proof site network is the surety bond as a token holder I stake my tokens with a validator and through that I'm providing the surety bond to the protocol which is doubly sure that this validator will meets his obligation to stay online and to validate the transactions

and this makes the validated kind of the principle of this agreement so obviously the hoping holder does provide the security only because he's expecting some future payments which are the staking rewards and then in proof of sight network even the surety bond can be claimed by the protocol right if there's a slashing basically the principal has failed to meet his obligation so the protocol can take away some of this surety bond which usually happens if there is a double signing Forex or in some protocols also if the party goes offline but there's one difference between

a normal like a surety bond that is how it's used in the real world and how it is used in proof of stake is that usually the premiums for providing a surety bond are paid to some kind of insurance company that once the revenues or wants to take over the risk but in proof of sake it's actually paid by WJ like the protocol itself so that's quite interesting how that is and maybe to also I have this also written as a post you can find it on our blog I will link to it in the

show notes but maybe also just another example from how surety bonds are used in the real world to make you understand like the relationship a bit better so usually WG in a real world is some kind of government authority that wants to have some let's say building builds and contract some contractor for it this is the principle the contractor has to fulfill this obligation he has to build this building but the same time the government authority might want to like lower their risk at this person or this firm won't deliver this on their promise so

they hire some insurance company that has to provide the surety bond if the obligations are not met and payout so that the risk for the government authority is lowered insurance company obviously does this in exchange for some kind of premiums that the contractor has to provide them now that you understand the relationship between surety bonds and proof sake let's go into how these fundamental economic principles came about in the world of distributed systems and digital assets so the history of proof of sake starts in 2012 with the inception of the sunny King and Scot Nadal

who first suggested likely mistake as an alternative to the then already established proof of work used in Bitcoin they also coined the term staking in this paper and what they did was they described an algorithm that would choose the block producing notes based on the amount of stake they had in their wallet and the age of the coins and in 2013 they actually released peercoin which is still around today and it was also the first hybrid cryptocurrency because hick Ryan used proof work to distribute the tokens and proof of stake to validate the transactions so

in a way it's also interesting that already they realized okay some proof of stake coins have a bit of a problem with the token distribution so they made use of proof work to kind of distribute the tokens more fairly and widely which i think is also a problem in some of the current proof of stake networks then in 2013 to continue with this real many cryptocurrencies follow this design of pure coin and tweak some things of it so notable examples include for example NXT which uses like randomization to select a block produce a based on

stake so in peercoin it was more like if you mind a coin and it was certain it had the age and then was like I'm the age and the stake and when you were chose as a block produces the age of your coin kind of reset it so that's how a producer which shows in NXT they use some randomization through the hashes on the blockchain and this model has been used a lot also by other points where it's a black coin or cute umm use that kind of similar staking mechanisms but all of these have

the problem or this idea of the nothing at stake attack so the nothing at stake idea is that basically because it doesn't cost you anything as a stake to attack or to mine on a different fork than the one that is there people would like mine on two different ones and you couldn't ever really know if you're on the right doctrine in practice there hasn't been many recordings or these currencies are all still around and maybe they don't have enough value or simply this attack doesn't really take place but still it is a theorized attack

and other cryptocurrencies actually improved on it an important cut in the history of proof of stake happens in 2014 around the time when aetherium is announced by vitaliy boo terrine he also already thought about how to move away from proof of work and also saw a proof of stake as one of the solutions to that problem and wrote an article about the slasher algorithm which also gave birth to the term slashing that we use till today and this algorithm was supposed to solve this theorized nothing at stake problem that other proof of stake implementations head

so if you look on the III room block to you can still find this letter a list which is quite interesting and at the same time j-kwon the creator of ten durman's which is the first EFT proof of steak or actually it's a VFD protocol that's used both in permission and permission as blockchains for example in cosmos and j-kwon role depending on paper consensus without mining and j-kwon was the first kind of combine inside from byzantine fun tolerant research in distributed systems with kind of the notion of digital assets and came up with tender mints

which is also the first mention of using crypto currency as the bond to ensure behavior of the actors in this proof of stake system and also in 2040 so is this was quite a day then full year for proof of stake daniela Rimmer launched bitshares which was the first blockchain it used his version of delegated proof of stake basically the consensus participants are also chosen writers day but they are voted into this validator set through the stake so basically how the process works is you have a fixed set of value laters and then based on

stake and every few time periods voting happens where it gets decided who stays in the set and who gets out this depose scheme when also later adopted by Liske and steam it and euros so this model is also quite successful but nowadays most of the proof of stake implementations we see are based on this idea that the stake actually is the deciding factor who gets to vote on a block and how much someone's vote in the consensus process counts so then there was a quiet phase actually between like these very eventful 2014 because people were

building their protocols and researching their stuff and in 2015 and 2016 there was not that much happening in the proof of stakes face so with 2015 mark the year where etherium launched using the attached proof of work algorithm that's still there today so even though a theorem like has been planning to move to proof of stake since the beginning actually still actually now it's very close let's say hopefully but since then it's been proof of work and it is still there and probably it's gonna stay that proof of work chain it's gonna stay there for

quite some while well in 2016 something new started to happen and what that was the cosmos white paper was released which described the proof of stake system that used tenorman consensus and basically described this Internet of blockchain so like of like a network of multiple blockchain and how they communicate in to communicate out of all of these different BFT networks and at the same year also D creds launched its main nets with a hybrid system of proof of work for block production and proofs take for checkpointing men 2017 happened which was quite the year of

peak high up around cryptocurrencies as I'm sure many of you know like many projects raised icos and also released white papers but on there a lot of like not-so-good projects there were also several legit ones that raised funds and kind of planned to use proof of stake to those belong for example card I know cosmos polka dot or a sauce and actually the tasteless white paper for example was already I would since 2014 and described this blockchain with Unchained governance mechanism that could like upgrade itself but in 2017 like most of these fundraisers happened as

you know many of these when Don's who raise quite sufficient amount of funds let's say and are still developing their proof of stake algorithms or actually our life like cosmos and tease us and in that year also a lot of research happened around like a theorems move to proof of stake specifically around the Casper protocol so one of them is Casper CBC which was led by black Zamfir the it's a correct by construction approach so there was also this project called our chain from the founder Meredith that used is like mathematically proven way of describing

the consensus protocol which is so today lot some theories researching and our chain kind of split off into this cat perhaps they are still planning to use Casper CBC and I think they are the ones that are still the forefront of this approach and the other Casper idea was Casper FFG which was kind of metallic lads research which a friendly finality gadget where basically the FIR idea first was to use proof of stake to finalize blocks on this proof of work chain by having validators votes based on stake on the blocks and similar to VFT

whale okay two-thirds agreement the block is considered finalised and so on but one of these approaches actually Casper CBC is still being researched but Casper's FFG got scratched but I'll get to that in a minute so let's move into 2018 so after all these projects raised funds there we start to see some new type of ecosystem forming after people realized okay there's gonna be these networks that need validators or this kind of new party that should validate transactions and participate in this PFT Network so one of the first companies had started to look at how

does this actually work out as a business around that look its course one which I'm part of and obviously and this has been a space that it started forming 2018 and today we could see it growing and growing for example when the teasers blockchain launched in June 2018 which is kind of an important date for proof of stake there have been quite a few Baker's right in billion of 2018 aro were like I think two Baker's they were planning to release this staking service for teasers and then now it's up to more than 400 Baker's

in the tears of blockchain which makes it one of the most decentralized or at least in a number of node count decentralized ones so the other big thing that happened in 2018 was kind of the theorems scratched their plans to implement this Casper FFG year checkpointing system on the proof of world chain and combined all the proof of stake efforts and the sharding effort that was already around at that time into one umbrella effort which is called a theorem 2.0 or serenity so basically sharding is this scaling solution where you have now multiple clock strains

that are able to come indicate to each other and that share the security or the same validator said that gets shuffled around these different charts and basically through that you are able to achieve much higher throughput and this has been researched since 2018 I think at Def Con it was fully announced that this will be a combined research effort and the different phases were announced how the transition is actually gonna happen what will be part of the UM 2.0 chain for example it was him and stay trends and so on and then another thing that

happened in 2018 you started to see the cosmos validator ecosystem maturing there were like lots of test nets happening cosmos codebase got more and more future completes and at the end of 2018 we started with the first it's centralized test net of it in the world actually which is the cosmos game of stakes and that was obviously a quite interesting time for proof of stake and and all this validator ecosystem and I'm sure many that participated in that had their trial by fire Brutus during this event and now you only like six I think it

was like six weeks after or maybe two months after the game of stakes and that the cosmos hub launched its main ads and has been life ever since and became like the first permissionless bft network in the world which is like kind of amazing and now in 2019 we're seeing so many new proof of stake protocols or in consensus algorithms and a lot of these networks that also raised money in 2017 18 or 18 are now planning to move and to launch or are in some test net phase or planning to launch their own incentivize

test nets so we it feels like we're moving into like a very exciting time for proof of stake just to mention like a few things maybe you you now have polka dot and their hybrid consensus of like grandpa which is this finality gadget and babe which is the block production consensus algorithm we have Ouroboros Genesis from the Cardinal or like the IO HK team which is also for example used by coda we have like stuff like hot stuff PFT Wed Libra using some VFT inspired tenorman inspired hot stuff inspired algorithm we have many many different

networks like Solana scale everyone using some form of proof of stake and moving close to their launch phases so I think it's very interesting and we will see what will happen this year also the if you roam 2.0 specifications are finalized like the all these implemented teams are building their clients and potentially the beginning of next year we will see the beacon train launching so I think I hope this gave you some basic overview of the history of proof of stake and also how it relates to this whole economic concept of surety bonds and I

think yeah we are still in very early days as you can tell like right now there's not that many networks actually online like many are in this test net phase and I think the next few months and years we will see like a lot of innovation and a lot of experimentation which is good especially I guess around different incentive designs how do you actually make sure your network is decentralized how can you do better total distributions we we saw for example the edgeware log drop where you lock up your ether and you get a error

of this other token there's still the idea of photons in the cosmos ecosystem where there might be like an air drop off of these tops two to aetherium holders and many many other different experiments for example this nominated proof of stake algorithm which we had Afonso on here to talk about in second episode there's entire correlation penalties so for example designing this lettering in a way that if a lot of the stay goes offline at the same time or double signs at the same time the slashing is higher than if it's only one and very

interesting concepts that hopefully will make the you network more robust but at the same time also keep the centralization and another concepts that come around and we can see this taking right now it's kind of these exchanges also entering the game we saw Polonius offering staking for atoms so there is also some risk there where we can that we can might see where like maybe centralized parties make it easier for people to participate paid in staking by allowing for example you to trade your atoms or any other cryptocurrency while you stake it while you just

use the normal delegation you will have to wait the unbounding periods and in many designs so there is also like lots of innovation and happening around that how can you achieve the same things in a decentralized fashion so one of the ideas there are these delegation vouchers that we designed together with seeker for example which is basically some kind of way to have a tangible representation of your staking position that you can then kind of trade if you'd want to exit your stake in position and through that maybe a kind of level the playing field

between custodial parties and decentralized staking operators so I'm sure it is like a lot of stuff coming up in these realms I'm make sure to follow us on Twitter to stay informed and subscribe to staking kana me newsletter where I cover together with Chris Remus the developments in the proof of stake ecosystem so they if you follow safe on of me I'm sure you will stay on top of everything that goes on in staking and also join our telegram and engage in a discussion what ideas you have what you are seeing in proof of stake

and how you see it evolving thanks so much for listening and until next time I will put links to some of the stuff I mentioned in the show notes and yeah see you next week for another episode of the coarse one podcast thank you for listening to the correspond podcast visit chorus dot 1 for more information about our work don't forget to subscribe to the podcast to stay tuned on new episodes airing every Wednesday you