In this part two of four part series, we explore how Core Chain works under the hood by covering validation, block production, and rewards. This will give you the context you need to understand why Satoshi Plus consensus is unique and innovative, and why Core Chain is the chain that will be Bitcoin’s complementary and hyper-scalable smart contract platform.

First, let’s review some of Core Chain’s broad objectives, which we discussed in part I. They are:

Achieving these objectives is made possible through Satoshi Plus Consensus, whose three basic components are:

In the next few sections, these topics will be covered in more detail.

With Core Chain, the incentives of Bitcoin miners have now been extended to cover a multi-purpose smart contract platform in a way that allows them to earn additional supplemental rewards for their work.

All a miner needs to do is add two pieces of information to a new Bitcoin block as it’s being produced: the address of the Core Validator they want to delegate their hash power to and the address they would like their CORE token rewards to be sent. In exchange for this, they receive CORE token rewards to add to whatever bitcoin they earn.

As you can see, they’re delegating their Proof of Work, hence the name “Delegated Proof of Work.”

Staking refers to locking up an amount of crypto for a certain span of time, and its main purpose is to support a blockchain project that the stakers think is promising. In return, they are compensated, usually in the form of receiving additional crypto.

Staking rose to prominence as blockchains began to pivot away from Proof of Work; in a blockchain like Ethereum, for example, the only way to become a validator and mine blocks is by locking ETH up – i.e. by staking it – in a smart contract.

The idea is that this aligns the incentives between validators and the broader network. Their ETH becomes more valuable if the network does well, and if they do something they’re not supposed to do, they can be punished through the destruction of a part (or all) of their staked assets.

Satoshi Plus’s Delegated Proof of Stake was based in part on a recognition of how powerful this incentive alignment can be. To participate in consensus, any CORE token holder can stake their CORE tokens with Core validators. They delegate their Proof of Stake, hence the name “Delegated Proof of Stake.” And, as with miners, CORE token stakers receive CORE token rewards in return.

You may be wondering how Delegated Proof of Stake is different from Proof of Stake. We don’t have space for a full answer, but one noteworthy difference is that Delegated Proof of Stake permits all token holders to participate equally, while Proof of Stake sometimes only permit large holders to stake.

Since part III will have a very detailed discussion of non-custodial bitcoin staking, we’ll keep our coverage here fairly short.

Bitcoin holders are being incorporated as the third part of Satoshi Plus consensus through non-custodial bitcoin staking. This requires locking up a certain amount of bitcoin for a pre-defined period of time, using a cryptographic primitive known as an “absolute time lock.”

You will find more in part III, or you can find a really technical breakdown in our “Unlocking Bitcoin DeFi” paper.

So far, we’ve discussed DPoW, DPoS, and non-custodial bitcoin staking at a fairly high level. Now, we’ll really explore the underlying machinery, including how validators are elected, how they’re monitored for bad behavior, how rewards are calculated, and more.

Validators are the entities that handle transaction validation and block production on Core Chain. Just as importantly, the process by which validators are elected is where the DPoW, DPoS, and non-custodial bitcoin staking parts of Satoshi Plus consensus come together.

Validator election occurs in two stages. First, hybrid scores are calculated for all validators in the network. For the mathematical specifics you can read the whitepaper, but this is essentially a weighted voting procedure. As discussed above, Bitcoin miners can vote for validators through their PoW (by writing validator information into the coinbase transaction on blocks they’ve already mined), and both CORE holders and non-custodial bitcoin stakers can vote for a validator with their PoS (by delegating their tokens to it). All three of these values are weighted to determine the hybrid score.

Second, at the end of each round validators are ranked in order of their hybrid score. The 21 validators with the highest hybrid scores are selected for the validator set in the next round.

After election, all validators are sorted roughly in order of their hybrid score, and they take turns, in round-robin fashion, producing blocks before the process starts over again from the beginning. Because there are currently only 21 validators, Satoshi Plus is able to accommodate a higher transaction rate and increased scalability. That said, the number of validators is expected to increase over time as the network grows.

To explain this by way of analogy, consider the kingsguard (or queensguard) from a fantasy epic like “Game of Thrones.” The queensguard is responsible for protecting the queen, and they’re usually chosen by the monarch herself.

But you could imagine a situation in which the queensguard were elected in a manner similar to Validator election on Core Chain. One set of votes might come from the existing members of the queensguard (this would be Bitcoin miners), one set might come from the royal family the queensguard will watch over (this would be CORE token holders), and the last set might come from people who’ve seen the candidates fight in tournaments (this would be bitcoin holders).

Of course, this analogy is very imprecise, but hopefully it’ll give you a compelling image to hold in mind as you read the rest of this series.

There are myriad ways in which a validator might fail to do its job properly, and Core Chain guards against this with “slashing” and “jailing”.

As its name implies, “slashing” means cutting one of two things:

Not all misbehaviour is the same, of course, and how much slashing occurs depends on what the validator has done wrong.

Verifiers are kind of like informants in that they report malicious behaviors on the network with “slash suggestions.” Slash suggestions can be submitted by anyone, but they can’t be made arbitrarily. Submitting a slash suggestion requires evidence of wrongdoing, if the allegations prove true, the rewards are worth the costs.

Then, there’s “jailing,” which excludes any bad validators from consensus activities in order to keep everything running smoothly. While blocks are being produced, the existing Core validators periodically check whether any current validator has been jailed. If so, they will update the validator set to omit jailed validators after an epoch (i.e. after 10 minutes).

Validators can get two kinds of rewards, base rewards in the form of new CORE tokens, and fees collected from transactions in each block.

The first kind, base rewards, are calculated and distributed out after the last block of a round has been mined. As things stand, 90% of the rewards go to the validators and 10% of the rewards go to the System Reward Contract (more on this later). Of the rewards received by validators, some percentage is taken as a commission by the validator before they pay out the entities that delegated to them – including CORE delegators, PoW delegators, and bitcoin stakers. Validators can take as much or as little of the reward as they want, but the more generous they are the better able they’ll be to attract more stake and hash power.

After the validators take their fees, the network determines how the remaining rewards are split between CORE stakers and hash power delegators.

That covers validator rewards, so now let’s talk about how relayers and verifiers are paid.

Earlier, we mentioned that base rewards are calculated and distributed when the last block of a round is mined, with 90% going to the validators and 10% to the System Rewards Contract. The System Reward Contract is set up to accumulate rewards for relayers and verifiers. There is currently a cap of 10 million total CORE rewards in the System Reward Contract, and any excess is burned.

What are relayers? Remember how we said that bitcoin miners delegate to validators by writing some information into the headers of Bitcoin blocks? Well, relayers are responsible for sending those block headers to the Core network. For this cross-chain communications work they are given a portion of the base system rewards and transaction fees.

For their part, verifiers get rewards for monitoring the behavior of validators and reporting them if they engage in double signing or other malicious activity.

It’s been a long journey, but we covered Core Chain’s basic design in part I and the machinery of validators, verifiers, and rewards in this post. Watch out for part III in this series, in which we’ll discuss some of the remarkable technical products that are being built on Core Chain.