Gossip ABOUT Gossip: Native Staking on the Hedera Network

Oh welcome to gossip about gossip. Powered by Hedera Hashgraph. In each episode, we'll cut through the hype of blockchain promises and explore real world examples of organizations creating the next generation of decentralized applications, which will bring trust back to the internet for us all. Hello and welcome to gossip about gossip, the podcast where we talk about real world applications for distributed ledger technologies. My name is Zenobia Gottschalk and I'm the SVP of communications here at World's labs, helping to develop the growth of the Hedera ecosystem. I am delighted to be joined by Paolo tasca, who is a longtime member of the Hedera community. He is a professor at UCL. Ucl is, of course, a member of the governing council and he is also the co-founder and executive director of the Center for blockchain technology at UCL. Hi Hello. How are you? Hello Hi. Nice nice to be here. Thank you for the invitation. Very glad. Absolutely so today we wanted to talk about Native staking on the Hedera network. And we had announced a few weeks ago we shared a blog post on phase one of Native staking as well as what that process will look like to roll out fully functional native staking on the network for those who are newer to the story and sort of newer to proof of stake. Can you talk a little bit about why staking is important for a proof of stake network? Yes, Thank you for this question. So what staking is fundamental for proof of stake because it aligns the network security with the individual incentives. And these are two important aspects. Let's look at the incentive first. So the proof of stake is fundamental. That provides basically the right incentive for each node to stake and to achieve basically an agreement on the order of the transaction and eventually at the end the settlement that all these transactions. So there is a fundamental difference between the incentives in a proof of stake systems and in proof of work system. So the proof of stake system is able to work with a low block reward. So the level of rewards can be relatively low, because basically there are two basically components that characterize the incentives for the participants. So one is the initial coin holding. So the stake, which refers to the total amount of coins that these nodes of stake, basically used. And there is a computer that just to the point before the meeting and the broker rewards itself. So when you are in a proof of stake system, you have these two components in mind. And if basically you contribute in a benevolent way to achieve consensus, then you indirectly increase the value of the native coin. So even with a sufficiently low, low block reward, you can basically shift the things and drive each stakeholder to prioritize basically the generation of this consensus, regardless of the other strategies of the other stakeholders. So these are basically implied good equilibrium and these are basically enable to achieve a consensus in a long term in any states. So these difference arise because the proof of stake require all validators to all these native coins they need to stake is a sort of, say, positive feedback loop that require this requirement, basically ensure these rewards to shift these validity incentives and by maximizing basically holding by validating and providing good consensus so they don't have the incentives to, you know, to misbehave or malicious attack is a relatively lower than that put forward in proof of work. Indeed we don't have this mechanism of incentive because validators do not need to hold any native coin. So this is a problem because low block rewards does not align the incentives that towards maximizing the value of the native coin. So rather than reducing the block, rewards indeed undermine the incentive of validators to participate in the validation process. So that's the part of the incentives that I think is very important for proof of stake. And I think this is why that was also conceived and designed on proof of stake. And there is also the second part, which is about security. Basically, the proof of stake is the mechanism that basically force every node and the risk taker to basically commit some level of collateral, let's say, in order for them to not break the rules. So they, they put their schemes in the game. Right so the more others the stake, indeed, the more secure is the network, because these basically reduce the probability of civil attack, which is when basically someone else colluded to create the false association or to do some bad things in the network. So the larger the network, basically the higher the cost for proof of stake attack. So opening up the network would be proof of stake increase also this level of security. And so for those who are not as familiar with hadiya's journey and sort of path to decentralization, why is this important for hadera, which is typically had all of the nodes run by council members? Yeah, well, council members basically is a consortium you can call our leading institutions and organizations that achieve trust and consensus of chain by formal agreements or arrangements or by memberships and, and in committees or working groups. So is a limited number permission number of members, which well established reputations. And as I say, of chain agreements though there are started in this permission way. So to say it's basically nature to become an open public, fully decentralized blockchain started back in 2018 where in the White paper back then that basically, the roots for this journey to happen. And over the last year basically we have moved towards a kind of close the Mission network to a more open network and we are going to be more open and public industry centralized. This is important is extremely important not only for that, but for the whole blockchain ecosystem, because public blockchains are the backbone of many decentralized applications. And and, you know. You think if you imagine also the new White and DeFi wars that are exploding. These are generally built on the public blockchain, the proof of stake consensus run and generally they are also very keen to and to look at the sustainability of the consensus mechanism. In this respect, let me say that the data is well positioned in the market, and one of our recent research at the University College London showed that data is the best of breed in this case. So but going to the benefits of having a these public blockchain rather than a permissioned blockchain, what this means. So this means basically indeed a larger developer community. This means basically a larger developer interest. This means basically that the is an arrangement that could be also for the development of a code based update and even development of layer 2 applications. So this for certainty is something positive. Second, that there is also let me say I was a former central banker and I have to take this angle sometimes. So having a public blockchain, which is fully open and transparent and permissionless, improves, let's say, the regulatory standing and positioning of the ecosystem of the blockchain inside but within the ecosystem within, within the market. And this is true both in the US and Europe looking at the current regulatory landscape. And, and finally, I would say that having an open IP of, of the code base, having a transparent and open access to the code can lead to for the development. And I'm thinking about the works that are basically run by the International bodies force organizations. And I have the honor to chair one of the first indeed the first subcommittee on the ISO standard is year seven, which was called which is still called taxonomy and terminology. And I think that having an open technology like hashgraph, this can basically lead to further adoption and consideration by these international bodies. So I think this will lead to greater market adoption. Yes and the flip side of that openness and open, open to everyone is that obviously there are more security concerns. And so can you talk a little bit about the unique security attributes of Hedera staking model? Is it kind of unique, let's say that we have kind of an infrastructure attributes and and based on these infrastructural attributes, we can have some imaging features of these infrastructure. So if you look at the infrastructure attributes of the data, we have what we call the voting, which is a kind of a visualization or if you want, or the voting base, the consensus mechanism which Adobe, one of the most robust asynchronous solution to the Sybil attack problem in decentralized network is really difficult to deploy and inefficient and sometimes no not even fair. So Hashgraph is this is a solution. If you want to this problem and it it used the principle the mathematics behind the voting based system and utilize this so and instead of voting basically this is done to message passing gossiping and basically we generally talk about gossiping about gossip, right? Which is basically the solution that enable everybody to have a complete set of information of all the history of the transition in the network. And if we have these complete pictures, then this makes easy to predict with probability one, what would be the vote that will be cast by each sphere without need for them to cast the votes? Basically, this is the infrastructure attribute that was mentioning. This means basically that cryptographically it is impossible to broadcast false information in the network. The worst case scenario someone can withhold information, go offline or choose not to broadcast the information gossip information about cannot gossip false information and just bring to some emergent properties. So the measured properties that make consensus mechanism unique is the fact that basically to these visualization of the voting system, we don't need the bonding, so we don't need a lockup period generally upending the system. We don't need slashing, basically punish the malicious behavior. We don't need a new coins to be mean to every time there is an achievement of the consensus. And these also prevented the inflationary problem that some of the crypto software in the proof of stake world. So you know it. There are is unique in this respect and that if you want to take a bird's eye view we can say that there is a kind of a mix if you want with the Hashgraph sorry, the consensus, a mix between the, the proof of stake and the delegated proof of stake. Because basically you can use this type of, you know what it is politician to staking without the need for election of delegates, which is generally something that's happening delegated proof of stake. So lots of good benefits that you went through there. Thank you. You know, I think one other question that we get is around emissions rates. Can you walk us through the emissions rate for Hedera with Native staking? Well, I cannot talk much about emission rate because we have been talking a large of coin com, which is these tokenomics and committee of data and will basically be decided in the upcoming meeting and there will be votes by the council in the next meetings. So I can talk about not what would be the emission rate, but I can talk about how we achieve our decision of what would be our emission rates. So it is important maybe for the people to understand the decision that. How this decision was produced. But basically we will support our decision by building from scratch a tokenomics model, an original economic model, basically, that we have designed and implemented over the last year with the support of an international team of economists and the complex system scientist. And we did this from scratch. So we need to. So let me say that we need to understand that most of the economics models that are out there that try to understand the guilty system, lack of formal scientific foundations and the models, and they're not able to model incentives in a proper way. So most of the economics of this, the real world that have some generic risks, are based on some poor assumptions. And sometimes some just strict assumptions that create frictions or create economic imbalance. This is true for most of the proof of stake and proof of work networks are there. So in adara, what we did is basically to start from scratch by starting by looking at basically that architecture, technically speaking. And then from there, we derive basically the economic model that will drive the incentives for the users. And basically this model is a composed of multiple sub models nested within each other. And this model describes basically the dynamic of important components. And so the model is able to give us predictions of important dynamics. And we use the model as a kind of a Navigator and to infer what the dynamics of the system is. So some of the dynamics that the model will able to give us is the mission is apart from the mission rate, of course, is the cumulative reward that pay out that will be paid out over time. For example, the dynamic cost of the fees collected over time, the accumulation rate of the reward account, 0 to 100. And the we look at the macro variable like also the optimal reward, the dynamics process, the wealth accumulation of the users and the nodes and the stakers. And, and finally, we look at some we produce some level of fairness by looking at the wealth accumulation of stakers and also looking at the coefficient like the Gini coefficient inequality index. And we look at the Nakamoto index for the nodes. So let me say that the Nakamoto index is very important because we represent basically the number of nodes that would be required to collude together in order to successfully slow down the network or attack the network. And by up in our study, which is now published and will be used as actually for the emission rate, we have found something very interesting about the Nakamoto index in the long run. Not now. We haven't done prediction in the long run and we have seen that in the long run. Once the data network will be public and open, more decentralized than ever, the Nakamoto index will stay stable around 40%, which is super interesting because the general Nakamoto index of other blockchains, like polygon, is 2% Solana. So that's a big difference. Yes, Solana is 1.52. Fantom is 4.5 something. So this level of robustness, which is basically remains stable in the long run, even when the system will be open and public and fully decentralized, is something that we found really, really astonishing. That's fantastic. Well, I think we are probably all excited to see that research when it is ready to be shared. Paolo, before we wrap up today, I think this is probably a question on the mind of a lot of folks in the community. What do you think? Can you walk us through the steps of what it will take to get to phase II/III for true, fully functional, robust staking on the Hedera network? And why do we have to go through that phased approach? Yeah, I mean, without going into much of the details, I think the idea behind it is to have. Right, the equilibrium between the other option, the adaptation, so to say, of the business ecosystem around the data and the technical implementation. So it's like basically launching rockets is not something that you launch in one cycle. You need to activate different right, you know, and you need to prepare a lot of setting around the rocket so that type of phase resemble that type of rocket launch. So we are ready somehow. Where we are in the face to face 3 is more technical and phase two basically will enable us to exactly prepare the setting around the launch, meaning engaging more closely with the wallets, with exchange platforms, making sure that there is a level playing field whereby all the users have the right access to same access and that they're not preventing to, to, to, to the staking opportunity. So we want we want we want to prevent basically the winner take all so that the more format and the user at stake can gets a higher reward. And that that's why also we put a tap on the API, the annual return, which would be 6.5, which is, to be frank, relatively high compared to the markets. And very and but this is important to put this Coppa to prevent this type of to guarantee this type of fairness. And the phase III basically is basically a technical development that will come after first phase, phase III. So I cannot basically exactly tell you a date when we will move from phase III four. But because this depends actually on the alignment of these different works that we are doing both on technical side and the business side. But I can tell you that it would be very, very soon. And it would be basically done, I mean, according to our internal plan, which is basically quite, quite soon. So I'm happy to see that, you know, despite the current. Let's go winter period, the data never stop the data indeed accelerate speed up towards the decentralization efforts. And this basically, I think, will bring us new opportunities. And when I say, as I say, for the whole blockchain ecosystem, so we need a we need a blockchain like the so. And soon the world will be activated full speed. All right. Well, Pablo, Thank you so much. I think we would love to come back and check in with you as Hedera is staking, develops and matures. But Thank you so much for sharing your time and your insights with this audience. I think that was very helpful. My pleasure. Thank you to you for having me here. All right. Have a good one. Thank you. Bye