Binance Smart Chain
I previously wrote on POW, POS, DPOS and POA as gentle introduction to the consensus model on BInance Smart Chain. Today I take a deep dive into the rabbit whole of reasons they needed a new consensus model, how their consensus model was developed and what it's details are...
Binance Smart Chain Community Goals
Binance Smart Chain has a unique goal of a becoming a decentralized and censorship-resistant blockchain that provides the financial infrastructure for financial services like lending and trading, but that also has lower operating costs than existing options.
The current Binance Smart Chain ecosystem allows individuals participating in the BSC ecosystem to have borderless access to financial tech or decentralized finance products and services with lower costs and possibly unique opportunities.
Mass adoption and acceptance is good
The cryptocurrency community is living through a happy time characterized by ever increasing levels of mass adoption and acceptance of Bitcoin, Ethereum and other blockchain projects. The exciting area of cryptocurrency economics called decentralized finance is also enjoying ever increasing mass adoption and acceptance, and most recent numbers published by a Decentralized Finance Oracle, indicate almost 44 billion dollars USD locked in Smart Contracts in Decentralized Finance platforms.
Proof of Work Chain Growing Pains
Bitcoin as a store of value is plagued by transaction times and transaction costs or fees, which limit it’s economical or practical use in commerce for the buying, and selling of goods and services. While Bitcoin Lightening Network has been deployed and it holds the promise of curing all the ills facing Bitcoin.
Ethereum on the other hand has numerous second layer solutions to its speed and cost of transactions issue, but no clear winner as of yet. Until such a solution is found, there is economic barrier to participation, which effects DeFi investors all over the world. ironically it is the success of Ethereum's community in terms of decentralization, security and trustlessness which has led to this success and in some respects failure. This situation is the opposite of what these systems were design to do. They were designed for equalization of access to amongst other things, financial opportunities. But the price of Ethereum has risen due to its increased value, and now paying for transactions with even fractions of Ethereum is unaffordable for a large percentage of investors. One has to only look at the movement of capitol into PanCakeSwap on Binance Smart Chain to see that price matters. Uniswap, an application on Ethereum had become the largest exchange in the world, surpassing Coinbase, the previous tittle holder based on the extreme interest in DeFi amongst investors. The rapid investment of capitol in PanCakeSwap and its ability to surpass Uniswap is remarkable, but also a clear sign that transaction prices in ETHer on Ethereum and Uniswap were a barrier to entry for many DeFi investors.
It's also clear to me at least, that the continued growth of Uniswap on the Ethereum Blockchain, recently broke another record with nine billion dollars USD locked up in smart contracts, (also called Total Value Locked). While simaltaneously PanCakeSwap has over reached a record of over nine billion in TVL, and its deposits exceed those on Uniswap. This indicates to me that they are not splitting the market, instead the market continues to grow, and they both are attracting investors from the growing pool of old and new DeFi investors. Because if PanCakeSwap was simply siphoning off investors, the market would be split between them, and TVL would be stagnant. But in reality the market is continuing to in both size and diversity. As new DeFi applications on Ethereum and Binance Smart Chain are being created.
The question on many peoples minds is investing there a form of second class citizenship because of centralization? So today I want to take an in depth look at Binance Smart Chain's Consensus Model, Proof of Stake Authority or POSA.
Proof of Stake and Delegated Proof of Stake
While these methods of achieving consensus were improvements over Proof of Work, they are not perfect solutions. The Binance Smart Chain developers looked at a fourth method of achieving consensus known as Proof of Authority, already in use by IBM’s Hyper-ledger Blockchain, and also deployed by one of the Ethereum Second Layer solutions called Kovance. These developers decided that the challenges faced by Binance Smart Chain required a new solution, so they built a hybrid of Proof of Stake and Proof of Authority, and called it Proof of Staked Authority. They had a new & unique problem: build and operate a decentralized and censorship-resistant blockchain that provides the financial infrastructure for DeFi, plus any new functionalities evolving DeFi needs and lower operating costs than existing options.
Proof of Staked Authority (PoSA)
POSA is a consensus model developed for Binance Smart Chain by their development team. This is a hybrid or combination of two other Consensus Models: Proof of Authority used by MATIC Bor, TOMOChain, GoChain, or xDAI, and Delegated Proof of Stake (DPoS) used by EoS, Cosmos, Steem and Hive.
The PoSA consensus:
. Relies on 21 community validators: think 20 Witnesses
. Blocks are produced by a limited set of validators (supported by delegators)
. Validators take turns to create blocks in a PoA manner, similar to Ethereums Clique consensus protocol
. Validators require daily re-election based on staking governance to participate in the Validator Set
The Focus of POSA
This new consensus mechanism enables validators, token holders, developers, and users to benefit from a rewarding blockchain that offers high performance and space for further innovations. Both delegators and validators support the network, help it grow, and further decentralize it while earning network rewards.
Who are validators and delegators?
BSC validators are individuals and groups operating hardware nodes, powering the BSC network by processing transactions and signing blocks. They can be institutional, individual, or community-organized.
There are two groups of validators: the validator candidates and the elected validators.
Validator candidates are all validators that meet the minimum hardware requirements, run a local BSC full node, and self-stake a minimum of 10,000 BNB. Anyone who meets the criteria can become a validator candidate.
Elected validators are the top 21 validator candidates with the highest total delegated BNB (self-stake + delegators’ stake) volume.
The elected validators change every 24 hours.
POSA is different from PoS/dPoS blockchains because the validators receive the reward in BNB, which is a purely deflationary token; its total supply decreases over time. See the BNB burn schedule for more info.
The BSC also supports the role of delegators.
Delegators are users who stake their BNB via Binance Chain Wallet to support their preferred validator and help the validator achieve the required minimum stake to participate in the validator elections.
In return for their participation, validators receive rewards in transaction fees from the processed network activity. The delegators receive interest on their BNB (share of validator earnings based on the individual stake) paid in BNB.
The average daily reward for a BSC validator in February 2021 was 134 BNB. The average APR for a BSC delegator was 60%.
Source: Block rewards by date
As a validator or delegator, you directly support the whole BSC ecosystem’s stability, capacity, and performance. The vigorous and rapid development of DeFi projects on BSC provides you with an opportunity to participate in a quickly evolving new market, gathering new experiences and investment opportunities.
Every elected BSC validator has three roles:
Technical – just like Bitcoin miners , validators on BSC power the network with their hardware, technology, and computing power.Non-technical – the wide variety of validators: different individuals, communities, and institutions boosts diversity, increases security and stability, and increases decentralization.Growth - Validators support the growth and innovation within the ecosystem, provide better community governance, add value to BNB, and thus increasing the value of their own stake.>A larger validator candidate pool provides increased decentralization and computing power distribution, resulting in better security and stability.
To become a validator candidate, you need to:
Meet the hardware requirements.Run a local BSC full node.Self-Stake at least 10,000 BNB.*
*The 10,000 BNB requirement allows the validator to get listed on the validator candidate list and attract more BNB delegation through their communities.
The high validator rewards drive competition, and the existing top 21 validators all have over 100,000 BNB staked as of March 1, 2021. The average voting power of elected validators is above 158,000 BNB, and the total voting power (total stake volume) is 3,458,961 BNB.
Binance Smart Chain Validator Guidelines
BNB holders and Binance Smart Chain users can become delegators on the BSC network and support their preferred validator, earn rewards and trust them to vote in governance on behalf of you.
Delegators stake their BNB, increase the validator’s capacity, and further boost decentralization and network growth. As a delegator, you’ll pay a commission to the validator for providing you with the opportunity to stake your BNB.
You can choose the best validator for you from a list of eligible validator candidates based on their history and other criteria and support them with your BNB stake.
In return, you’ll receive a staking reward.
Redelegation and undelegation
As a user, you delegate your BNB stake to a validator, but you can also redelegate and undelegate your BNB. You can perform one redelegate and one undelegate every 7 days.
Redelegate
Relegation gives you the ability to transfer (redelegate) a part of your stake delegated with Validator A to Validator B. This allows you to support multiple validators and earn rewards from each elected validator by sending a redelegate transaction with the amount of BNB you wish to transfer.
Undelegate
With undelegate, you can remove (undelegate) your stake from a validator. This allows you to withdraw a portion of your stake or your full stake from a validator by sending an undelegate transaction to unbond BNB.
How to redelegate and undelegate BNB.
What is Validator Governance?
BSC is a very competitive blockchain with multiple advantages over other blockchains commonly used for DeFi infrastructure. To remain competitive in the future, it must be compatible and upgradeable to future consensus protocols. Here,
BSC relies on the Binance Chain (BC) for staking management.
Binance Chain supports a dedicated BSC staking module that accepts BSC staking from BNB holders and calculates the highest staked node-set.
Every midnight (UTC), BC issues a verifiable ‘ValidatorSetUpdate’ cross-chain message to notify BSC to update its validator set with 21 new validators elected from the top 21 validator candidates based on their total staked volume (voting power).
The validators then govern the specific network features such as:
· Adjusting the gas price
· Changing the system parameters
· Upgrading blockchain protocol
Projects on Binance Smart Chain
The BSC ecosystem lists over 180 projects, whose developers created applications which perform as Wallets, Infrastructure, Credit & Lending, or Games.
Last Words
so as you can see, POSA is a complex for of POS, DPOS and borrows from another form of Consensus called Proof of Authority. It is in a sense a highly evolved hybrid or crossbred of the other consensus models built to achieve new goals, while keeping it's roots in the concept of decentralization, tracing it's roots through POA, DPOS, and POS to the original decentralization model POW.
It is in some ways more evolved than it's predessesors, but whether it's an evolutionary step forwards or backwards is a pretty deep rabbit hole debate. The bottom line is that it's cheap, it's fast, it has all the building blocks of Ethereum for DeFI and investors from all corners of the earth are flocking to it to enjoy borderless, cheap access to the financial benefits of DeFi. I think thats one very good endorsement. What do you think?
References
Binance Chain Blog