Human economic relationships have been based on the same basic principles for thousands of years. An over 4,000 year-old tablet discovered in Mesopotamia, present-day Iraq, depicts an arrangement about the payment of corn, the currency of that era. This is the first recorded history of what we call a surety bond today.
Portrayed on the tablet are three parties: the first party is the obligee, who is expecting a payment of corn at some later point in time. The second party is the principal, who is supposed to fulfill this obligation. The obligee requires a guarantee from a third party, the surety, should the principal fail to meet their obligation. This guarantee is called a surety bond. Surety bonds are commonly requested to ensure contractual promises are met. They are usually obtained in exchange for annual premiums to account for the risk of the principal failing to meet their obligations.
But what does all of this have to do with Proof-of-Stake (PoS)?
In some sense, stake in a PoS network is a type of surety bond:
By staking tokens with a validator, a token holder is providing a surety bond to the protocol that this validator will meet his obligation to stay online and to faithfully validate transactions. The token holder provides this surety bond in expectation of future premiums; the staking rewards. In PoS networks with slashings, the protocol can claim a part of the surety bond should the principal (the validator) fail to meet his obligations, e.g. by going offline or double-signing. The difference between common forms of a surety bond and a PoS protocol is that premiums aren’t paid by the principal, but by the obligee (the protocol) itself.
Let’s fast forward a few thousand years and find out how these fundamental economic principles made it into the world of distributed systems and digital assets:
2012 - The Inception of Proof-of-Stake
- Sunny King and Scott Nadal first suggest Proof-of-Stake as an alternative to Proof-of-Work (PoW) and coin the term staking. They describe an algorithm that chooses block producing nodes based on the amount and age of coins in an individual’s wallet. Peercoin (PPC) is released and becomes the first hybrid cryptocurrency. PPC uses PoW to distribute tokens and PoS to validate transactions.
2013 - The Early Days
- Many cryptocurrencies follow in the footsteps of Peercoin, notable examples include pure PoS projects like NXT, which uses randomization to select block producers based on stake.
2014 - BFT, Slashing, and DPoS
- A key turning point for PoS is when Jae Kwon first combines insights from distributed systems research and bonds in the form of a cryptocurrency in the original Tendermint whitepaper.
- In the same year, after releasing the Ethereum whitepaper, Vitalik Buterin proposes the Slasher algorithm (giving birth to the term slashing) that could solve the theorized nothing at stake problem of other PoS implementations.
- 2014 also marks the year in which Daniel Larimer launches BitShares, the first blockchain using Delegated Proof-of-Stake (DPoS) (later also adopted by Steemit, Lisk and EOS) in which consensus nodes are voted into the validator set by token holders.
2015 & 2016 - The Quiet Before the Storm
- In 2015, Ethereum launches using the Ethhash PoW algorithm.
- In 2016, the Cosmos whitepaper (a PoS blockchain using Tendermint consensus) describing a vision of an internet of blockchains emerges and Decred launches its mainnet with a hybrid system of PoW for block production and PoS for checkpointing.
2017 - Peak Hype
- Several projects aiming to utilize PoS raise funds: Cardano, Cosmos, Polkadot, Tezos to name the most prolific (the Tezos whitepaper describing a PoS system with on-chain governance had already been published in 2014).
- A lot of research is happening around PoS. Notably on IOHK’s Ouroboros and on the two Casper approaches: Casper CBC (a correct-by-construction approach to consensus) and Casper FFG (a finality gadget that would checkpoint the Ethereum PoW chain).
2018 - A New Ecosystem Emerges
- A new ecosystem around operating PoS infrastructure starts forming (Chorus One is among the first embarking on this journey as a validator).
- The Tezos blockchain launches in June 2018 and grows to over 400 validators (bakers) to date.
- Ethereum scratches plans to implement Casper FFG as a checkpointing mechanism and combines Casper, sharding, and other Ethereum improvements such as eWASM into one: Ethereum 2.0 aka Serenity.
Pro tip: from here on developments in PoS can be followed along in the Staking Economy newsletter ;)
2019+ Proof-of-Stake Goes Mainstream?
- After almost a year of testnets that culminated in the first incentivized testnet competition “Game of Stakes”, the Cosmos mainnet launches March 2019 as the first permissionless BFT network.
- Eth2.0 specifications are finalized. Many Proof-of-Stake projects that raised money in 2017 or 2018 are moving into (incentivized) testnet or launch phases.
I hope this article helped you to understand the key milestones in the history of Proof-of-Stake!
Even though there is already a rich history of work around Proof-of-Stake, we are still at the very beginning. The pace of innovation is rapidly accelerating and many interesting experiments are and will be conducted. Some examples include: Polkadot’s Nominated Proof-of-Stake algorithm, anti-correlation penalties, exchange staking, as well as designs that will allow staking positions to unlock their full economic potential (e.g. delegation vouchers).
The next few months and years will show which PoS design will help enable a secure, decentralized, and performant blockchain network.
We will see the staking and decentralized finance space merging and hopefully will be able to avoid some of the outcomes that made so many fall out of love with the legacy financial ecosystem. I remain hopeful that the crypto community can solve this puzzle and create more sustainable systems for human collaboration.