The following is an excerpt from the Hybrid Network medium explaining how Proof-of-Stake (PoS) will be conducted through the Hx network. PoS allows for Hx holders to lockup some of their Hx tokens to participate in governance voting as well as to receive consensus rewards.
For those who are new to Hx, a glossary of terms is also provided to help you through the learning curve.
Here are some terms to familiarize yourself with before we continue:
Ticket — A ticket allows participation in PoS and is used for decentralized consensus governance (there are 20 new Tickets per block)
Vote — A vote is a Ticket that has been selected by a Proof-of-Work (PoW) miner from the Ticket Pool (there are 5 Votes per block)
Ticket Price — This is the original cost of your purchased Ticket
Ticket Fee — This is the fee paid to the miner (txfee) to incentivize the inclusion of your Ticket into the Ticket Pool
Ticket Pool — This is the total number of Tickets in the network at a given time that reside in a mempool
Stake pool — A third party that maintains confirmation for Tickets and Votes amongst a group of participators
Ticket Maturation — The time before your Ticket can be added to the Ticket Pool (256 blocks)
Ticket Immaturation — The time after your Ticket has Voted, missed or expired before you can purchase another Ticket (Another 256 blocks)
Ticket Window — The number of blocks before the difficulty adjustment is maintained by the Stake Difficulty Algorithm (Every 144 blocks or about 12 hours)
Stake Difficulty Algorithm — The method by which the network adjusts to keep Ticket prices fair and maintains the Ticket Pool size
So, now that you understand these terms, we’ll talk about how to stake and a ticket’s life-cycle:
What is the life-cycle of a Ticket (solo PoS mining), and how do I stake?
To receive staking rewards, Hx stakeholders must first start by purchasing a Ticket. Before being able to purchase a Ticket, tokens must be held in a wallet for approximately one day to be eligible. When you purchase a Ticket, the Ticket Price and a Ticket Fee are included in the transaction. The Ticket Price is fixed and everyone pays that predetermined offered rate. The size of the Ticket Fee determines your priority in being included as one of up to 20 new Tickets sold into each block.
The Ticket Fee is non-refundable once your purchase of a Ticket is mined. After 256 blocks, the Ticket matures and is added to a Ticket Pool, where it is eligible to be selected for Voting. Tickets are selected at random from the Ticket Pool to be cast as Votes. If you are solo mining, you must keep the desktop wallet running for the system to verify your claim of your purchased Ticket AND when your Vote has been cast.
You have a 2-block window for your Vote to be mined into a block. The stakeholder receives a small reward, as well as the original Ticket Price, when the Vote is included in a newly mined block. Time frames range around 28 days on average before a Ticket is selected as a Vote. This is based on Poisson distribution, which states at an average of 28 days, there is a 50% chance that your Vote has already been chosen. At a maximum, this could take up to 142 days, with a .5% chance of the Ticket expiring before being picked.
If your Ticket is missed or expires, the original Ticket Price is returned without any additional reward. Whether your Ticket has been used for Voting, missed or expired, you must wait another 256 blocks before purchasing another Ticket during a period of Immaturation. During this time these funds (rewards and/or the original Ticket Price) are not spendable. Solo PoS mining as detailed above requires your desktop wallet to be running without interruption throughout the Ticket life-cycle.
Miners are penalized in the form of reduced block rewards for including less than 5 Votes per block. This penalty is what incentivises miners to include broadcasted votes from the ticket pool that have been selected. Another parameter used to ensure fairness in the system is the maximum Ticket Pool size for the network, which is maintained through the network’s Stake Difficulty Algorithm and is re-calculated every 144 blocks, or about 12 hours.
If you are Voting as an individual (PoS solo mining), you must keep your desktop wallet running. This cannot be stressed enough because if your wallet is not running, you may miss the opportunity for the network to validate your Ticket when it is added to the Ticket Pool AND when your Ticket is selected to Vote. If your desktop wallet is not running your Ticket may become expired and you will lose your ability to earn the staking reward. The wallet will automatically revoke your Ticket if it is missed or has expired. In this scenario your Ticket Price is automatically refunded, but your Ticket Fee is not.
As a solution to this, stakeholders may choose to enter into a Stake pool if they cannot keep their wallet running 24/7. Stake pools are built into the protocol and pose little centralization risk as you do not hand over control of your staking coins in the pool. Stake pools have pre-determined fees for the service they provide to pay overhead costs such as running servers. This allows stakeholders to purchase Tickets without the concern of being available online to claim your Ticket.
By participating in a Stake pool, you delegate your right to Vote to the Stake pool. It is recommended that Stake pools support Voting preferences. The Stake pool does not have access to your funds and does not lay claim to your rewards. When you buy the original Ticket, your purchase includes the commitment to be sent to your own reward address. The Voting reward is then allocated by the protocol according to the terms of the Ticket. There is no way for the Stake pool to gain access to any portion of the reward that isn’t agreed to at the time of the Ticket purchase.
If you have any technical questions, or would like to contribute, please join the Hybrid Network!