While both mining via Proof of Work
(POW) and staking are two of the most popular ways to perform work to earn
income, cryptocurrencies are also susceptible to advances in computing, which
could undercut the value of the coins by making them much easier and less
expensive to mine. The dawn of quantum
computers is upon us. And while this causes many to fear the loss of income
potential, the truth is that an increase in difficulty to mine or stake is
factored into the underlying algorithms in blockchain systems which have
adjusted accordingly from central processing units to graphics processing units.
From field-programmable gate array to application-specific integrated circuits.
The real threat quantum
computing has for cryptocurrency work systems is in attacking the
public-key cryptography.
Quantum
Computing and Bitcoin
Satoshi
Nakamoto created Bitcoin on the unspent transaction output (UTXO) model. In
basic terms, think of all bitcoins in your wallet as change. When making a
payment, this change is combined and sent. Once bitcoin is spent, the public
keys of that address are broadcast to the entire network so that they can
verify that you signed the coins over to a new address. Quantum computers have
the ability to reverse your private key from your public key, so address reuse becomes
a problem.
With
the UTXO model, any change you have from a transaction will go to a newly
generated address. All addresses which have never been spent are safe from a
public-key attack because the key has not been broadcast. This does not change
the fact that many basic users reuse addresses for convenience and many work
protocols like POS reuse addresses as well.
Vulnerabilities
in POS
To generate passive income by POS,
this process is called staking. During
staking, some of your coins are locked and unavailable to spend. Similar to a
savings account in a bank, these coins are reserved by the network for a short
period of time. In return for borrowing these coins the owner receives interest
(coins) just like banks pay customers interest. POS coin supplies are
inflationary at a variety of yearly rates; providing stakers better interest than
local banks or credit unions.
In most cases, your coins need
to be available to the network (online) in order to be staked. However, if you
lack guaranteed internet connectivity or just prefer not to keep your wallet
online all the time in order to mitigate potential exposure to security risks,
you are at a disadvantage because you can’t earn passive income on your coins
while they are offline.
While
staking is considerably less energy intensive, POW is still considered by many
to be superior to POS. One of the chief arguments for that position is a
security flaw in staking systems — POS gives away your public key when you
stake.
This argument has merit because in most
cases coins are stored in a small amount of addresses, mostly one, and that
address is unlocked (unencrypted) for staking. The public key of these unlocked
staking addresses is regularly being broadcast to the network.
One project building resistance to quantum
computing is Particl, the open-source privacy framework built on blockchain
technology. Here’s a look at how that project leverages innovations like cold
staking, multi-signatures and HD wallets to improve POS security, maximize income-generation
and provide secure, private, flexible
spending options for owners of its token, PART.
Cold
Staking
In its most basic terms, cold
staking keeps your spend public key and private key private.
While you still need to be
online to generate stakes, cold staking leverages multi-signature addresses so
you can stake from multiple computers. A person earning passive income on a
network with cold staking, like Particl’s, can set up a dedicated stake-only
machine while simultaneously spending those coins around the world on any
mobile HD wallet like Ledger or Particl’s own Copay App.
In terms of quantum resistance,
this makes reversing private keys to public keys nearly impossible. For
beginners, the stake-only machine is broadcasting a public key that is
different than the mobile wallet key. In order to steal coins, both private
keys would need to be known when using multi-signature. The more computers
broadcasting stakes and spending stakes the greater the resistance becomes.
On November 10, the Particl
network will have a planned hard fork to activate cold staking on the main blockchain.
The team has been community testing this new feature on its test network since
the beginning of August.
Summary
Although most cryptocurrencies
lack cold staking support, Particl is not the only platform to support it. A
few others, such as BlueCoin and BlackHalo, also enable cold staking.
If you’re seeking to build a
reliable passive income stream over the long-term using cryptocurrency, a
feature like quantum resistance is important. If the past half-century is any
indication, computers will always grow more and more powerful. A sudden advance
in computing technology could practically wipe out the value of coins that lack
quantum resistance.
As the cryptocurrency world
evolves and grows more complex, generating income reliably using cryptocurrency
is also becoming more challenging. Features like cold staking and quantum
resistance provide income-generation benefits and guarantees that are now available
from core cryptocurrency platforms like Particl.