We’ve written extensively about proof of stake and staking, but what does the more technical side look like? How does Divi’s staking work?
April 02, 2021 · 5 min read
To learn everything you could want to learn about proof of stake, check out our guide. In this blog, we’ll be going through a few of the specifics of staking in our ecosystem. It’s on the technical side, but as always, we will endeavor to make it easy!
To fully understand the ins and outs of staking, you’ll need to be familiar with some key components of staking in the Divi ecosystem:
Once you understand these concepts, staking makes more sense. We promise!
As you’re probably aware, or will soon find out, the terminology in cryptocurrency leaves a lot to be desired. Many terms are overly technical, and make no sense to the average user. The term UTXO is one of those terms. It stands for unspent transaction output and refers to the leftover currency that someone has when spending their crypto. For example, If a friend sends me 10,000 DIVI, I have 1 UTXO of 10,000. If I send 3,000 DIVI to another friend, that 3,000 DIVI is broken off, and I am left with a UTXO of 7,000. UTXOs have an incredibly important role to play in blockchain security and the ledger, but that’s beyond the scope of this article.
Coin age should really be called ‘UTXO age’. Every UTXO has an age, which starts at zero when it’s first created. If we use the example above, when I receive that 10,000DIVI transaction, the UTXO age is zero. After 7 days, the coin age will be 100%.
Coin-age effects ‘staking weight’. For example, Divi staking on day one has 1/7th the chance of winning a stake, compared to a fully mature coin (aged 7 days).
PIVX removed Coin Age, but we reinstated it. The reason is that it helps with “coin velocity,” which is a problem that affects many cryptocurrencies. Since staking rewards don’t kick in immediately, it’s better not to spend or move your DIVI. If you’re not spending them, you’re holding them, and that’s good for all of us. Coin velocity is improved when a cryptocurrency ecosystem has incentives for people to hold onto them longer because it helps keep the value higher. For the first few years, while we build Divi’s ecosystem, we want to attract holders.
To reach full maturity, Divi coins take 7 days!
First, let’s recap the staking process, along with UTXOs:
For this example, let’s say you have 100,000 DIVI in a single UTXO. When you first receive the transaction, you won’t have a chance of receiving any staking rewards right away. After one week, it will be staking at 100%. If at any time someone asks you to send them 100 DIVI, and you send it from that address, it’s going to break off a 100 DIVI chunk from the 1 million and create a new UTXO with 999,900 DIVI, and in doing so, it will reset that coin-age to zero, meaning it will be another 7 days until you are staking at 100%.
When you win a staking award, the UTXO that actually won the block for you will have its coin-age reset to zero when it combines with 456 DIVI, the staking award. What that means is that having a lot of large UTXOs is bad because they get their staking reset.
Divi has a built-in remedy for this to help you, which is that when one of your UTXOs wins a stake, it will automatically break up a big UTXO of more than 100,000 DIVI into two equal halves, and it does it without a transaction fee. That way, if one of the two halves wins a block, the other half keeps its coin-age at 100%.
For every stake you win, you receive a ticket to Divi's weekly lottery. So if you've won a stake this week, you may have already picked up a winning ticket too!
How do I get my wallet to start staking?
It will do it automatically. You don’t have to do anything except make sure it's "unlocked." Just keep it running and connected to the internet. Divi Wallet will include staking vaults, which will simplify this process further.
If my staking is only at 50% then does that mean the rewards I receive will be 50% the size?
Not at all! The 50% staking refers to the chance of receiving a reward every minute. It's like you are only receiving 50% of the tickets to a lottery that you normally would. If you win during this time, you still get the full reward.
How do I maximize my staking earnings?
Don’t touch your coins and don’t put them on an exchange. Moving your coins between accounts resets their staking power to zero and it takes a week to build it to 100% again.
Can I take my DIVI out of my masternodes and stake them on lottery day to receive more rewards?
Technically you can do that but in the end, you’ll be losing rewards overall. Your chance of winning the lottery is small but you’ll be guaranteed to lose rewards when your masternode is getting re-verified by the network. Mathematically, it isn’t worth it.
If I turn off my computer or lose internet connection, does my coin age reset to zero?
No, that won't change the UTXOs. The UTXOs are part of the blockchain and it’s the age of each UTXO that matters.
Why does coin age reach 100% in 7 days?
Other cryptocurrencies implement different times. Peercoin’s UTXOs don’t start staking for 30 days, and get to 100% in 90 days! That just seemed too long to us (we are a currency after all) so opted for a shorter time frame. We stuck a balance between ease of use and addressing coin velocity.
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April 02, 2021 · 5 min read