Everything you want to know about eCash staking rewards

Momento della lettura 5 minuti

In eight days, the eCash network will be undergoing its regularly scheduled semi-annual upgrade, except I would say this upgrade is anything but regular. That’s because once the upgrade is complete, there will be a radically new incentive structure in the eCash protocol.

In addition to the IFP allocation going from 8% to 32%, which I’ve already written about here, the eCash protocol will be activating staking rewards for the first time in the history of any Bitcoin fork. What follows are some frequently asked questions and my answers to each:

How do I stake my eCash?

To stake your eCash, you will need to (1) run your own eCash node and (2) generate a stake proof using the Electrum ABC wallet. Below are links to various resources that will help you accomplish both.

Running your own eCash node:

YouTube video on how to set up your own VPS node
Proof of Writing blog post on setting up your own VPS node

Generating a stake proof:

YouTube video on how to generate a stake proof
Official blog post on generating a stake proof
Proof of Writing blog post on generating a stake proof

What are the minimum requirements to stake my eCash?

At a minimum, you will need 100M XEC that is in a wallet you control. While you can stake multiple UTXOs as part of a single “proof”, each UTXO must hold at least 100M XEC and have 2016 or more confirmations in the blockchain (~2 weeks).

Additionally, you will need to rent a Virtual Private Server (VPS) to run your node with the below requirements. Prices may vary, but I’ve found Contabo.com and Hostinger.com to have the best rates at ~$20/month.

Processor: at least 2 virtual CPUs
Memory: 4GB Ram
Storage: 300GB SSD
Bandwidth: 2TB/month

Can I run an eCash staking node on my home machine?

While it is possible, this is not recommended for various reasons. Consumer grade machines are generally less reliable when it comes to uptime compared to enterprise-grade or server-grade computers, and nodes that do not have reliable uptimes will have a significantly lower chance of being chosen to receive the staking reward for any given block. In addition, keeping a home computer on 24 hours a day can quickly damage your machine as well as potentially causing you to reach your internet service provider’s monthly data limits.

What purpose do eCash staking rewards serve?

The purpose of eCash staking rewards are to incentivize XEC holders to run Avalanche enabled staking nodes. Avalanche is a new consensus algorithm that was added to the eCash protocol to work in conjunction with Bitcoin’s battle-tested Nakamoto consensus to make eCash more secure while also improving the user experience. But in order for Avalanche consensus to work effectively, a sybil resistance mechanism is required to ensure bad actors aren’t able to cheaply spin up nodes and attack the network. By requiring a stake, an attacker would have to accumulate more XEC than all the honest nodes and then choose between using his stake to defraud people by stealing back his payments, or using it to generate new coins. In that case he ought to find it more profitable to play by the rules, such rules that favour him with more new coins than all other stakers combined, than to undermine the system and the validity of his own wealth.

Can I stake my eCash through my exchange or my favorite wallet?

No. At this time, no exchanges have announced they will be allowing their customers to stake eCash through them. This may change, however, if there is enough demand from users asking their exchanges to do so. While it is possible to delegate your stake to someone else who runs a node, you will have to trust them to properly pay you your share of the staking rewards.

It is also not currently possible to stake your eCash if it’s sitting in Cashtab.com or any other 3rd party wallet. The only compatible wallet is Electrum ABC, or by using a hardware wallet in conjunction with the Electrum ABC interface.

What will be the annual percentage rate (APR) on my staked eCash?

The APR will vary depending on the total amount of XEC staked. While some blockchains have a fixed staking yield regardless of the amount that is stakes, this is not the case with eCash. Currently, the block reward is 6.25M XEC per block plus transaction fees. With the staking rewards set at 10% of the block reward, this means ~625K XEC will be paid as staking rewards with each block that is mined. Excluding transaction fees (which are currently negligible), this means 32.85B XEC would be paid out annually as staking rewards. In order to determine the APR, you just need to divide 32.85B by the total amount staked. Including immature stakes waiting to come online, there are a total of 184.24B XEC staked as of this writing, which equates to an APR of 17.83%. Please remember that after the halving, which is expected to occur sometime in April, the block subsidy will be going from 6.25M XEC to 3.125M XEC, so the APR will also be reduced accordingly. (Note APR is different from APY, or the annual percentage yield, which assumes your rewards are added back to your principle for a compounding effect. While you can manually add your staking rewards to your staked amount, it is not possible to have it done automatically.)

How will eCash staking rewards be paid out?

eCash staking rewards will be paid out every block. The recipient of staking rewards will be chosen deterministically based on the amount staked by each peer compared to the overall amount staked. For example, if the total amount staked is 200B, an individual who has staked 2B XEC can expect to win 1% of the time. Since there are 144 blocks mined per day on average, that equates to 1.44 blocks times ~625K XEC per day, or 900K XEC per day on average, until the halving in April at which time the amount of the rewards will be reduced by 50%. Keep in mind that since staking rewards are part of the coinbase transaction, they are not spendable until they have received 100 block confirmations as is the case with all mining rewards. Your staking rewards will be sent to the preferred payout address you input in the proof editor when generating your stake proof. If you don’t designate an address, it will default to one that is in your proof wallet.

Will the staking rewards allocation from the block reward ever be more than 10%?

While Bitcoin ABC has not publicly discussed this issue, I think it would be safe to assume that should the need arise, the percentage can be changed based on market conditions similar to the way it was decided the IFP percentage needed to be increased as a result of the current price and the upcoming halving.

What will happen to the price of XEC once staking rewards are launched?

Nobody can answer this question as the price can be impacted by a number of factors. However, what can be said is that after November 15th, miners will have significantly less XEC to sell on exchanges since their share of the block reward will drop from 92% to 58%. And while nothing can prevent stakers or developers from selling the XEC they earn from the block reward just like the miners would, it’s possible, or even likely, that these groups don’t have the same capital requirements that miners do and will hold their rewards for longer.

If I stake my coins, are they locked for a certain period of time, or is there a risk of me losing my XEC?

No. While there are plans to one day allow users to lock their coins to enable new use cases, that is not the case today. Anyone who is staking their XEC can move their coins at any time, though doing so will invalidate their stake and prevent them from earning staking rewards until they restake their eCash and wait the required 2016 block confirmations before doing so. Also, unlike other chains like Ethereum that have a slashing mechanism, this is not true with eCash where your staked coins can remain in cold storage and are not at risk of being slashed or stolen.