→View the full Proof of Transfer draft whitepaper
We’ve seen a lot of innovation in the crypto industry in the last 10 years. Bitcoin gives us a store of value and digital reserve cryptocurrency. Smart contracts are finding early applications in decentralized finance. We believe that the next big chapter for crypto is emergence of a user-owned internet on top of blockchains.
Today, we’re excited to publish the (draft) whitepaper that proposes a novel mining mechanism called Proof of Transfer or “PoX”. If adopted, we believe Proof of Transfer will be a key tool in fully realizing a user owned internet and the promise of Web 3.0 in a secure way.
There are many possible designs for a user-owned internet to emerge on top of blockchains. Here are a few possibilities:
- The user-owned internet is anchored in Bitcoin, the most secure blockchain.
- The user-owned internet emerges around a DeFi ecosystem like Ethereum.
- The user-owned internet is built on a new blockchain ecosystem specifically tailored for it.
At Blockstack PBC, we’re believers in Bitcoin. We’ve used Bitcoin in our implementations for years, specifically the Stacks 1.0 blockchain launched in 2018 as a “virtual blockchain” on top of Bitcoin. We’ve refined our designs even more since then.
Bitcoin is the ultimate trust machine. We believe that Bitcoin can become the flag of technology and most people will get introduced to crypto through Bitcoin. Bitcoin is already the king of proof-of-work (PoW) and there can be further gains in hash power on the main Bitcoin chain, leading to a world where there is one really secure, extremely hard to attack PoW chain.
Building new features on Bitcoin comes with challenges that are almost paradoxical. Bitcoin is secure because it is stable and doesn’t change. Bitcoin is secure because it has a very limited scripting language with a much smaller attack surface. Introducing new features to the Bitcoin core protocol is hard and not desirable as these features add complexity.
So how do you benefit from Bitcoin’s security without modifying Bitcoin?
At Blockstack PBC, we’ve been exploring precisely this design space. The Stacks 1.0 “virtual blockchain” is one point in that same space, where Bitcoin miners process Stacks “virtual” transactions. The proof-of-burn (PoB) proposal, see SIP-001, is another point in that design space, where miners of a new blockchain can mine by burning Bitcoin instead of burning electricity.
Proof of Transfer is a proposed design that uses Bitcoin’s Proof of Work (PoW) to launch new blockchains that are anchored in Bitcoin’s security. Further, PoX can give incentives to participants in such new blockchains in the form of earning Bitcoin. Such Bitcoin rewards were not possible before PoX. These rewards can potentially be used for use cases like consensus participation, ecosystem developer funds, incentives for specific players, etc.
Essentially, PoX harnesses the durability of Bitcoin and enables developers to build upon its 10+ years of lessons learned running in production. We see Proof of Transfer as unlocking new, untapped use-cases for Bitcoin. We want to enable developers, like ourselves, who want to build new, innovative technologies within the Bitcoin ecosystem. PoX enables a host of new possibilities, making previously difficult or impossible scenarios accessible and simple. For example, PoX can enable a powerful smart contract language like Clarity on a new blockchain that benefits from Bitcoin’s security without any modification to Bitcoin.
In the Stacks Improvement Proposal SIP-007, we’re proposing the use of PoX in the new Stacks 2.0 blockchain. It allows the Stacks 2.0 Blockchain to reap the security benefits of Bitcoin and possibly reward Stacks (STX) holders for contributing to the Stacks 2.0 network. Further, developers can spin up new PoX blockchains that have the security properties of Bitcoin.
If accepted, proposals for this new design will mean that after the Stacks blockchain upgrades to Stacks 2.0, any developer will be able to:
- Work with a open-source reference implementation of a PoX blockchain anchored to Bitcoin
- Skip past the arduous and insecure process of bootstrapping a new PoW chain
- Design blockchains that have a built-in funding mechanism
Further, if accepted, Stacks holders can earn Bitcoin rewards by adding value to the Stacks 2.0 network in the new consensus algorithm. See this forum post for details.
At Blockstack, our mission is to bring forth a user owned internet. Bitcoin has been the rock on which the crypto industry has been standing. We believe that a user owned internet will be anchored in Bitcoin’s security and will emerge around the Bitcoin ecosystem. Proof of Transfer is the link that enables more innovation around Bitcoin. With PoX, Blockstack and Bitcoin can combine to power the future of Web 3.0.
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Proof of Transfer FAQs
What is Proof-of-Transfer, or PoX, and how does it work?
Proof-of-Transfer is a new proposed mining mechanism (introduced in SIP-007) that uses the proof-of-work cryptocurrency of an established blockchain to secure a new blockchain.
To participate in the consensus algorithm of a public blockchain, one must commit computational or financial resources. Mining mechanisms specify how resources are committed. For example, on a Proof-of-Work (PoW) blockchain, participants known as miners do some “work” that requires significant computing power and, in turn, are rewarded with that blockchain’s newly minted cryptocurrency.
On a PoX blockchain, rather than committing computational resources, miners commit financial resources by transferring the PoW cryptocurrency of the more established blockchain to some other participant in the network. In turn, these miners are rewarded the new blockchain’s cryptocurrency.
What happened to Proof-of-Burn (PoB)?
PoX is a generalization of Proof-of-Burn, which was the mining mechanism originally proposed for the Stacks blockchain (Blockstack Technical Whitepaper 2.0). On a PoB blockchain, miners participate in the consensus algorithm by burning the cryptocurrency (i.e. sending to a “burn address”) of an established blockchain.
PoX is a potentially more economical version of PoB. Rather than destroying the valuable cryptocurrency (e.g. Bitcoin) committed by miners, PoX miners distribute this cryptocurrency to all participants working to help secure their network’s chain
Why is Blockstack proposing PoX?
PoX can address two challenges: securely bootstrapping new blockchains and giving incentives to people to participate in the consensus algorithm.
Instead of starting many new blockchains, which are highly insecure, PoX offers a model where new blockchains can be anchored to one extremely secure PoW blockchain (such as the Bitcoin blockchain). Furthermore, PoX provides incentives for early participants, encouraging them to help secure a new blockchain starting from the early days.
PoX enables new blockchains to establish initial value for their cryptocurrencies as well as stimulate general participation interest, which itself helps to grow new cryptocurrency systems.
How would PoX work on the Stacks blockchain?
If PoX is adopted, the Stacks blockchain would use Bitcoin (BTC) (the more secure blockchain) as the PoW cryptocurrency that is transferred. In order to participate in the consensus algorithm of the Stacks blockchain, Stacks miners would track the both the state of the Bitcoin blockchain and the Stacks 2.0 blockchain. Miners would agree on the Bitcoin addresses for Stacks holders who are actively participating and transfer BTC to these participants. Winning miners (chosen using a verifiable random function or VRF) would get to write new blocks on the Stacks blockchain and earn rewards in the form of newly minted Stacks (STX) tokens.
As a note, in order for there to be a fully-functional consensus algorithm on a PoX blockchain, the PoX mining mechanism must be combined with a set of consensus rules. The process for selecting miners on the Stacks blockchain (outlined above), is an example of one rule set that can be used with PoX.
Why use the Bitcoin blockchain?
Bitcoin is by far the largest and most secure blockchain. Theoretically, other PoW blockchains can be used, but the security properties of Bitcoin are currently superior to others. Further, we believe that a healthy developer ecosystem around Bitcoin can continue to grow, which may open doors to future innovations like lightening channels between Bitcoin and the Stacks blockchain.
What is Stacking?
In blockchains, consensus algorithms are a related, but separate, concept from mining mechanisms. A mining mechanism provides “sybil protection” by introducing a dynamically-adjusting cost for peers to participate. On the other hand, a consensus algorithm is the set of rules and protocol steps through which nodes reach agreement on the state of the system.
The PoX mining mechanism must be combined with a certain rule set for there be a fully-functional consensus algorithm on a blockchain. PoX blockchains can vary depending on these rules and how the base cryptocurrency is distributed.
“Stacking” (introduced in SIP-007) outlines one PoX scheme driven by participation rewards. In this scheme, participating STX holders are rewarded BTC and participating miners are rewarded newly minted STX tokens. In order to participate, miners would commit BTC, which would be distributed to STX holders who control some threshold number of STX and add value to the Stacks network. Miners themselves would then write new blocks on the Stacks chain and earn newly minted STX tokens as a reward.
Is Blockstack exploring other PoX blockchain designs?
Blockstack is currently doing further research on several aspects of PoX mining and participation rewards. For example, we are exploring an alternative to Stacking such as one that contributes some percentage of BTC to a developer fund (rather than solely to network participants) in a blockchain ecosystem instead. There are no current plans for such a developer fund for the Blockstack ecosystem; these are interesting research ideas to explore that can be used by anyone.
We are actively collaborating with our community on ways to improve PoX to better grow the Blockstack ecosystem. If you are interested in contributing, please reach out here.
Important disclaimer
The Securities and Exchange Commission (SEC) has qualified the offering statement that we have filed with the SEC under Regulation A for our offering of certain of our Stacks Tokens. The information in that offering statement is more complete than the information we are providing now, and could differ in important ways. You must read the documents filed with the SEC before investing. The offering is being made only by means of its offering statement. This document shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
An indication of interest involves no obligation or commitment of any kind. Any person interested in investing in any offering of Stacks Tokens should review our disclosures and the publicly filed offering statement and the final offering circular that is part of that offering statement here*. Blockstack is not registered, licensed or supervised as a broker dealer or investment adviser by the SEC, the Financial Industry Regulatory Authority (FINRA) or any other financial regulatory authority or licensed to provide any financial advice or services.
Forward-looking statements
This communication contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. In some cases, you can identify forward-looking statements by the following words: “will,” “expect,” “would,” “intend,” “believe,” or other comparable terminology. Forward-looking statements in this document include, but are not limited to, statements about our plans for developing the platform and potential mining operations. These statements involve risks, uncertainties, assumptions and other factors that may cause actual results or performance to be materially different. More information on the factors, risks and uncertainties that could cause or contribute to such differences is included in our filings with the SEC, including in the “Risk Factors” and “Management’s Discussion & Analysis” sections of our offering statement on Form 1-A. We cannot assure you that the forward-looking statements will prove to be accurate. These forward-looking statements speak only as of the date hereof. We disclaim any obligation to update these forward-looking statements.
