Proof of Stake Mechanism : Interview with Philip Matov from ConcenSys ②

Philip is a Venture Architect at ConsenSys, a blockchain venture production studio, where he is helping to build an ecosystem of consumer-centric products and enterprise solutions using the Ethereum blockchain. Previously, Philip founded Belayer where he served as CEO and helped build the company to become the leading blockchain technology investment & consulting company in Bulgaria. He feels inspired by strong and determined leaders who can bring the best of their teams and strives to become one in the future

Philip Matov (Venture Architect at ConsenSys)

Interview Date : 26th March 2020    

Proof of Stake Mechanism

The way that we transact through Ethereum today is through a consensus mechanism called proof-of-work. This consensus mechanism defines the rules which will allow me to send and receive tokens. Bitcoin uses the same protocol. Each time a transaction is posted for validation what happens is that there is a race between several different miners to solve complicated mathematical algorithms in order to verify that transaction. The problem with this approach is that it is quite energy inefficient. Furthermore, it is not as scalable as we would like it to be.

ETH2.0 is offering an alternative consensus mechanism called staking; if you are a holder of Ethereum you can stake that Ethereum in order to protect the system and in order to validate the transaction. If you have any bad intentions, you will be penalized because you have staked that Ethereum. The upside is that because you stake that Ethereum to support the system, you will get some rewards. So, you will get some return out of it. When staking becomes available, you will be able to put your Ethereum in the bank and the Ethereum will start generating interest. That is a big opportunity for exchanges, custodians, investment funds for crypto, and large Ethereum holders in general to start benefiting from it.

However staking is not as straightforward and is easy as it may sound. There are a lot of risks that you run into by staking, and you need the appropriate infrastructure to make sure that you are doing it right. Within ConsenSys, one of our solutions is a “Staking as a Service Solution” for ETH 2.0 and we already started a pilot program with exchanges and custodians before the launch of ETH2.0. We want to make sure that our solutions correspond to their technical and functional requirements. The idea is that in July these players would be able to start staking right away without necessarily building their infrastructure. So, that’s something we are focusing a lot on right now.

Sharding as a Scaling Solution

Sharding is a type of database partitioning that separates into smaller, faster and more easily manageable parts that are called shards. There are 2 ways how you can scale data base; either horizontally or vertically. This means that if you have a database collecting personal information from your name to your address to your ID, one way to separate it would be to put your name and address to one database and your id on another database. Now you have created 2 places where you can search for information instead of going through everything.

Another way to scale your database is horizontally. Here, the same information is in the database, but let’s say that the same information is ordered in alphabetical order of names. A type of horizontal division is called sharding. So sharding is a type of horizontal database division. The result of all this is that you are going to have a more manageable, easier and faster database and Ethereum functions.

Financial services on Blockchain

We do not only rely on very gigantic blockchain projects that happen once in a while. We also build a lot of products, some of them are infrastructure and development tools, and some others are applications. However one of our core products today is Codefi.

DeFi is an umbrella term for financial services such as borrowing, lending, or trading but built on a decentralized blockchain such as public blockchains using smart contract examples include decentralized lending, security token offerings and many others. This is an alternative way to manage our assets that is much more efficient, but in order to fully benefit from its potential, there is an important intermediate step which consists of transitioning many of today’s financial instruments and assets from paper-stored and centrally-controlled to a distributed ledger. That transformation from analog to digital is a process that quite a large number of companies are getting involved into. We have heard much about tokenization of assets, about security tokens and stable coins, they are part of this financial transformation. Codefi is our approach for solving issues of asset manufacturing.

For years, the FinTech space has been solving a lot of problems on distribution levels. Let’s say we have 3 different layers , first one is manufacturing, the second layer is middle office and the third layer is distribution. A lot of these FinTech companies have been solving problems on that distribution level. These incl. Robinhood, Revolut,and many others that have been figuring out new ways of how to distribute products that have been existing for a very long time. These are the same products that have been there for a very long time, but now are distributed in a much more appealing way, especially to younger consumers. There have been some improvements in the middle offices, especially in efficiency gains, so some companies have been focusing on that.

However, no companies have been focusing on the manufacturing of assets. The foundation of the financial system hasn’t changed for many decades. Our approach to solving that problem is that we really want to create an operating system that will help a new way of launching assets and in managing them. So we have built Codefi which is what we market as the operating system for commerce and finance built to optimize business processes, digitize assets and financial instruments.

It has 4 pillars, that are Codefi Assets (use-cases of issuing, distributing and managing of digital assets), Codefi Networks (staking into ETH2.0, lending protocol and other blockchain features), Codefi Payments (crypto and stable coin payments with reporting tools) and Codefi Data (analytics, management and risk analysis). It’s an operating system where you build your asset, you issue them through Codefi Assets, you manage payments through Codefi Payments. You also get all the useful insights from the market like risk analysis from Codefi Data, and then you collateralize these assets against a loan if you want to be using Codefi Networks. So that’s our answer to approaching that problem that we have been promoting and that has gained a lot of traction. It’s been quite an interesting journey.

Interviewer , Editor : Lina Kamada



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