Introducing Proof-Of-Transfer (POX) and Stacking
Introduction
Let’s start by explaining what a blockchain consensus algorithm is. If you are at home with this, you can go straight to subsequent part of this article. Blockchain consensus algorithm, refers to the process through which participating nodes in a blockchain come into agreement on the present state of the blockchain, before new blocks are added. There are a number of consensus algorithms being used across different blockchains with the popular ones being the proof-of-work (POW), proof-of-stake (POS), and byzantine-fault-tolerance (BFT). The 1st ever cryptocurrency Bitcoin, operates on one of the most secured blockchain and uses the proof of work consensus where miners contend against each other to Complete transactions by solving some complex mathematical puzzles using their computing powers and be rewarded with Bitcoin.
Proof-Of-Transfer & Stacking
When Blockstack was introduced in 2018, it wanted to use an approach that will leverage on the security of Bitcoin’s blockchain to secure an entirely new blockchain using the proof-of-burn (POB) consensus. In the proof-of-burn (POB) consensus, validators or Miners will have to send their base currency which in this case is Bitcoin to a burn address where they can never get it back, this process is known as burning. This gives the miners a chance of being selected in a random selection process to be the next miner on the new blockchain. At the initial stage, because stacks(STX) wasn’t valuable enough, most miners did not want to burn their Bitcoin because it was more valuable than the new token they were being offered, this gave birth to the proof-of-transfer (POX) consensus where instead of miners to send their Bitcoin which is the base currency to a burn address, they send it to the address of participants who are stackers that are at least holding a pre-determined minimum amount of the new currency Stacks(STX. The concept of locking up a certain amount of a Currency, in this case stacks(STX) which is the currency on the new blockchain for a certain amount of period is what is known as stacking. This provides stackers of STX the opportunity to earn Bitcoin which is being released by the miners as rewards for locking up their stacks (STX), and conjointly give the miners who release their Bitcoin to Participating STX holders a chance to be arbitrarily selected using a verifiable random function (VRF) as the next miner on the new Blockchain, and be rewarded with new STX tokens. This way Blockstack with the launch of Stacks 2.0, is introducing a more viable way to operate a new blockchain, using the concept of proof-of-transfer (POX) and Stacking without competing with bitcoin but rather leveraging on it.
This is for educational purpose under the freehold initiative
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