Proof-of-Stake

Proof-of-Stake (PoS) is a consensus model which employs a staking mechanism to secure the network. Participants in the consensus are required to stake a monetary value in order to create new blocks. On the other hand, Proof-of-Work (PoW) is a consensus model in which miners must complete a certain amount of computational work to create a new block. PoW has been shown to facilitate a fair initial distribution and a trend toward decentralization. All participants in PoW (the miners) must spend money on real-world energy bills, resulting in a trend toward reduced participation share of the miners in the network. Conversely, PoS has a tendency towards centralization, as stakers in PoS receive rewards in the native currency, thus eventually leading to a larger participation share of the network for the stakers.

Botanix Labs has opted for a Proof of Stake consensus model. Since Botanix is build as a Layer 2 on top of the Bitcoin parent chain, the centralization trend for the participants seen in PoS will be counterbalanced by Bitcoin’s PoW and Botanix can benefit from Bitcoin’s initial fair distribution. However, this also means there will be no base fee reward for the stakers and the fees gathered by the staking participants stand against the opportunity cost of locking their stake. Proof of Work makes a lot of sense for the base reserve currency due to its decentralization trend and fair distribution, while the performance and speed benefits of Proof of Stake make more sense for a second layer.