The PoS gold rush era has begun. Who will be the next Bitmain?

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Bitcoin, the first generation cryptocurrency, has brought necessary changes to our world, and the Proof of Work (PoW) mechanism behind it has also created today's giant - Bitmain.

As the cryptocurrency world develops, more and more people are paying attention to Proof of Stake (PoS) currencies. Although this consensus mechanism introduces new attack vectors, it is gaining more and more recognition because its energy consumption is almost negligible and its scalability is better than PoW.

The PoS mechanism means that the more tokens (equity) you hold, the more likely you are to receive new block rewards. In the early days of PoS, due to the small size of the overall cryptocurrency market and the fact that the top-ranked currencies were all PoW currencies, Staking services (also known as PoS mining pools) did not have many opportunities.

As PoS coins become more and more mature (including Ethereum, which plans to switch to PoS in the future), it has become unwise to ignore this market.

What is a Staking Service (PoS Mining Pool)?

The point of the staking service (PoS mining pool) is to bring together the interests and then carry out the staking process. Generally speaking, the larger the PoS mining pool, the greater the probability of being selected to verify a block.

We can give an example:

Alice has 10,000 of a certain PoS currency (1/100,000 of the total), and she doesn't want to pledge the currency to others, but to verify it herself. Now, when a block needs to be verified, the blockchain will try to find the most suitable investment wallet to verify it. In this case, the possibility of Alice being selected is very small.

Bob also has 10,000 of a certain PoS currency (1/100,000 of the total), and he knows about staking services (PoS mining pools), and he pledges his coins to a PoS mining pool. Since the number of tokens held by this PoS mining pool is higher than other wallets or mining pools, it is very likely to be selected to solve the block and get a reward.

By participating in the PoS mining pool, Bob has a greater chance of making a profit, and then the block rewards will be distributed to the mining pool participants, and the mining pool service provider may charge a certain percentage of the reward as a service fee.

In general, PoS mining pools and PoW mining pools are very similar, but there are also differences. For example, PoW mining pools gather computing power, while PoS mining pools gather token rights.

Staking services will introduce more attack issues, so is it safe?

Since the staking process requires the wallet to stay connected to the network and investors need to pledge their equity to the PoS mining pool, the issue of attacks has obviously become the biggest threat facing the PoS mining pool. In many ways, the situation of today's third-party PoS mining pools is very similar to that of early Bitcoin exchanges. All the bad things that happened to Bitcoin exchanges (from hacker attacks, server crashes, to scams) are likely to happen to PoS mining pools.

In comparison, the threat of attacks faced by PoW mining pools is much smaller (because computing power and coins are separated).

Recently, we have seen that the leading exchange company Coinbase has also announced support for Staking services. It is worth noting that it claims to store the customer's mortgage funds in a cold wallet, and then use its own funds for staking. This measure takes into account the possibility of hacker attacks and minimizes the problem of customer funds being stolen. However, due to its high cost, the fees it charges are relatively high. According to the situation of the Tezos project, Coinbase has collected almost half of the block rewards, but it is not ruled out that it will be adjusted according to different projects.

If you choose a bad PoS mining pool, it may mean that your funds will never be recovered, which may be because the operator is fraudulent or the security procedures they have written are poor.

Regulatory uncertainty

PoS mining pools not only have security issues, they also face regulatory issues.

Regulators are only now beginning to apply money services business rules to exchanges and PoW mining pools, and it is an open question whether the emergence of PoS mining pools will be on regulators’ radar.

Since this area is still a gray area, it is uncertain whether staking pools will require stakers to provide proof of identity, and institutions like Coinbase that maintain close contact with regulators should take relevant measures.

Who will become the Bitmain in the PoS era?

After talking about the above, we should understand that PoS mining pool will be a huge market, but it faces more security challenges, which means that if we don’t choose a good mining pool, we may suffer heavy losses.

So, here comes the point: which PoS mining pools will be relatively safe, and which ones may become the Bitmain of the PoS era?

First of all, we should try not to select teams that have no experience in PoW mining or exchanges, because based on the above analysis, we can see that PoS mining pools will be more difficult to operate than PoW mining pools, and the challenges they face are more like exchanges.

Therefore, from a security perspective, we should first target the major exchanges in the market (such as Coinbase, Huobi, etc.) and several larger PoW mining pools.

It is foreseeable that in the coming period of time, all major exchanges are likely to launch similar staking services. Bitmain's AntPool, which previously launched eosantpool, can also be regarded as a PoS-like mining pool. It is not surprising that these PoW giants are involved in the PoS field.

In addition, Spark Pool, which has clearly participated in the Cosmos project, and MATPool, a subsidiary of Babbitt that has been involved in several PoS projects, are also stepping up their layout.

Wallets such as Cobo have cloud wallets that are more like banking functions, helping mortgage users to stake and obtain corresponding block rewards.

Next, we can look at the existing staking service startups in the market that have received funding from well-known investment institutions. For example, Staked, a staking-as-a-service company founded in April 2018, received a $4.5 million seed round of financing from well-known industry investment institutions including Pantera Capital, Coinbase Ventures, Digital Currency Group, and Winklevoss Capital at the beginning of this year.

In general, current staking services (PoS mining pools) require participants to trust the project parties. Therefore, project parties that already have a reputation in the industry are relatively more trustworthy and are more likely to occupy a territory in the PoS era. In this regard, exchanges have great advantages.