staking, policy, what’s going on; an ode to open source; consensus is king
1. Top of mind: On staking; plus, a pulse check on crypto policy & regulation
This past week, the SEC announced charges against cryptocurrency exchange Kraken for “failing to register” the offer and sale of their crypto asset staking-as-a-service program. Kraken ceased its staking services shortly after, also agreeing to pay $30 million in penalties. But the question for many was: Would this affect staking overall in the U.S.?
Why does staking matter? In modern blockchains, "staking" serves a similar function to "mining" in other blockchains — that is, both are mechanisms that allow a participant to earn the right to provide computational capacity. But staking is far more energy efficient.
How it works: On a proof-of-stake blockchain, anyone can “stake” or lock up their tokens to earn the right to contribute computational resources and security to the network (in exchange for rewards in the form of more tokens). The blockchain's consensus mechanism randomly selects stakers in proportion to how many tokens they have staked.
Since staked tokens act as an incentive for stakers to act in good faith and follow protocol rules, staking also helps with decentralization because participants are essentially pledging their tokens as an assurance of good behavior — without relying on a centralizing or less secure off-chain system. And while staking means that anyone can participate in a protocol (as long as they have a powerful enough computer, tokens to stake, and a connection to the internet), staking-as-a-service programs can make it even easier for more people to participate.
For more on proof-of-stake blockchain designs, security, technical considerations, community, process:
▶️ watch: A survey of proof-of-stake (PoS) blockchain designs by Valeria Nikolaenko
🎧 listen: PoS blockchains - designs, consensus, attacks with Valeria Nikolaenko, Tim Roughgarden, and Sonal Chokshi
🎧 listen: Ethereum, Merge and beyond with Tim Beiko, Ali Yahya, Tim Roughgarden, and Sonal Chokshi
📄 read: What ‘The Merge’ means by Ali Yahya
For a16z crypto legal, policy, and regulatory teams’ position on recent events, see 🧵:
Crypto policy & regulation: What’s going on?
Collin McCune, Miles Jennings, Brian Quintenz, and Sonal Chokshi
In the latest episode of the web3 with a16z podcast, we provide an overview of policy and regulation in the crypto industry — from a lay of the land to pulse-checks on sentiment. We also share frameworks for policymakers and others trying to understand or navigate the space, as well as quick guidance for builders on how things work (and how to participate).
Throughout, we dig into the mindsets, myths, debates, and nuances involved in regulating crypto… And finally, we quickly touch on what to expect for regulation in a few specific domains.
related: Be sure to also check out our ongoing regulatory recaps.
2. Resources: Open source tools you can build on and use
Daejun Park, Noah Citron, Sam Ragsdale
Open source is critical to the crypto ecosystem, enabling composability and much more. Here are just three (of several!) open source crypto tools we've shared so far — for anyone to use, build on, and share:
An on-ramp to formal verification and more, Halmos allows developers to reuse the same properties written for unit tests for formal specifications through symbolic testing; developers can avoid duplicative work and improve tests a few specifications at a time, without starting from scratch. [*latest release*]
Light client tool Helios provides fully trustless access to Ethereum. For the sake of convenience, many use centralized RPC (remote procedure call) servers; but users need to trust the providers, and there’s no way to verify the correctness of queries. So Helios converts data from an untrusted centralized RPC provider into a verifiably safe, local RPC without running a full node. [see also: ‘blockchain’s mobile moment’, here]
zkDrops enables privacy-protecting crypto airdrops. Crypto airdrops commonly expose lots of unnecessary information about token recipients. But zero knowledge proofs can enable people to selectively reveal only specific pieces of information. [*recently updated*: faster proving time]
…be sure to also check out our ongoing auctions series, from Michael Zhu, Scott Kominers, Tim Roughgarden, and others. Watch this space 📥.
3. Consensus, consensus, consensus
Andrew Lewis-Pye et al
The latest in our series of Canons culls and curates a set of resources for anyone seeking to understand, go deeper, and/or build with consensus — the systems of agreement that enable cryptocurrencies to work, determining the validity of transactions and governance of the blockchain.
Consensus protocols are central in the world of blockchains. But the literature can sometimes be hard to get a handle on, so this canon helps anyone get up to date on the foundations, as well as the latest research links… categorized by the type of protocol discussed, along with an overview of general resources:
see also: This recent video in our ongoing a16z crypto research seminar series, where Bram Cohen (founder and CEO of Chia; inventor of BitTorrent) provides an overview of “Consensus based on Proofs of Space and Proofs of Time” — resulting in a blockchain with more distributed and larger resources that secures and uses vastly less energy. How can these same techniques be applied to proof-of-stake?
from zero to one… or one to zero
--Sonal Chokshi with Ali Yahya, Eddy Lazzarin, and a16z crypto teams
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