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September 24, 2017 . Sep 24, 2017 . 3 min read

Why Storecoin is Inventing Dynamic Proof of Stake (DyPoS)

A key goal of Storecoin, a new public blockchain with a governance similar to the checks and balances of the U.S. Constitution and dynamic economics similar to ride-sharing companies like Uber, is to power free transactions for users and app developers for the more-than-thousand-year life of the platform.

The challenge for Storecoin, then, was to develop a way to support mining — the process by which blockchain transactions are cryptographically validated and securely added to the blockchain — without charging the folks making the transactions.

Both Bitcoin and Ethereum pass the mining rewards onto users in the form of transaction fees / inflation.

For instance, In Bitcoin Proof of Work, miners are rewarded with new units of cryptocurrency generated by the network (inflation) + a small fee per transaction. Once the Bitcoin network mines their total 21,000,000 BTC, there will just be a transaction fee without any inflation.

In Ethereum’s Proof of Work, miners are rewarded with transaction fees (gas) paid for by the senders of the validated transactions (plus inflation). Both networks give miners inflationary rewards every time a block is successfully mined. In Ethereum’s future build (Casper implementation) it is said there will be no inflation and just transaction fees.

To solve this problem, Storecoin is introducing Dynamic Proof of Stake (DyPoS).

In DyPoS, miners (validators) are rewarded with new inflation added to the network and there are no transaction fees.

Example scenario of rewards a validator gets in 1 day based on stake and DyPoS determined reward.

Storecoin’s 1 billion tokens are pre-mined. To enable free transactions for users, transactions on Storecoin will be paid for with new inflation capped at 5 percent per year. This token inflation will reward validators for staking transactions and validating the decentralized consensus. One percent of total inflation rewards will go to the Storecoin network itself, so the project can more easily change and adapt as needed.

Storecoin will use its Dynamic Proof of Stake algorithm (DyPoS) to spread out this 5 percent per year token inflation across 365 days, to an unlimited number of blocks, and to an unlimited number of transactions. To determine dynamic block times and rewards, DyPoS uses a similar algorithm as Uber does for surge pricing that matches transaction load needs with validator data center power. In laymen’s terms, DyPoS increases the rewards for quick validation when the number of transactions increases.

The effect of transaction volume on block rewards. This surge logic determines the “Reward per Block (DyPoS)” value in the calculation graphic above and would update daily.

DyPoS works in two ways. First, you have an economic network effect on blockchains: the more transactions, the more valuable the token becomes (there is a 95 percent historical correlation for Ethereum, 72 percent for Bitcoin). Second, you give validators a reward in the form of inflation to do the work, so no matter what happens to price over time, the validators still accumulate coins for performing the validation work.

Therefore, the incentives are for token holders to stake the Storecoin blockchain regardless of the validator rewards. With more transactions, there will be a higher price for their token.

This algorithm keeps validators producing blocks and fairly rewards all participants in the environment with scale.

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