The number of Tezos bakers is on the rise.
The protocol's term for a validator (its equivalent of bitcoin's miners), bakers are crucial to ensuring the nascent network's security. And that's all the more necessary given the value of the funds at stake.
Since raising $232 million in 2017, the protocol has had a very bumpy path to getting off the ground. Once live, though, it's become a top 20 blockchain by market capitalization, with a valuation consistently above $1 billion. Furthermore, there's been little out of the ordinary happening on the new blockchain.
Watching the amount of tokens staked to validate and the number of people taking part is probably the best way early on to assess the stability of the new network.
"I've been particularly impressed with the role the community has played in this process," Mike Reinhart of Obsidian Systems, which is building software for bakers, told CoinDesk in an email.
So far, it's been a smooth increase in bakers overall.
There are 108 bakers working on Tezos, as of this writing, besides the nodes run by the Tezos Foundation, according to TzScan.io, a block explorer for the protocol. At launch, all validation was run by the Tezos Foundation, but that opened up with the seventh cycle (each cycle runs roughly every three days).
This is only the third week that the protocol has been operational. It's difficult to draw any big conclusions from either the limited growth or the limited attrition so far.
But the number seems to be growing as services come along to make it easier for holders of XTZ to participate. It takes 10,000 XTZ to serve as a baker (what the creators call a "roll"), plus a little technical know-how and a good internet connection.
At current prices, that's roughly $15,000 in cryptocurrency, but if the holder has a long position in tezos, then baking gives them a way to earn additional income while they sit on their tokens.
The number of rolls staked for baking has been increasing steadily as well, helped in part by the growth in delegation services. For holders that don't have $15,000 in cryptocurrency to dedicate to baking, the protocol also allows for users to delegate their tokens to a service in order to earn rewards. TzScan lists 36 companies that offer baking services so far.
It also shows three bakers that have already dropped out of providing delegation services: TZ Baker, Tezos MX and, most recently, XTEZ.
Fear of a centralized protocol
Still, two bakers on the platform represent about 20 percent of all the staked XTZ.
On the other hand, the foundation's nodes have already dropped to less than 50 percent of the total network. In the current cycle, the other 107 bakers make up 32.8 percent of the xtz staked for validation.
However, due to the way delegation on Tezos works, there's a delay from when a user decides to delegate tokens and when they really start working. Tzscan makes it possible to look several cycles ahead, and five cycles down the road, at cycle 17, (about 15 days away) those large delegation services are losing market share.
"First, they've shown a strong inclination to bake themselves: 46 percent (202/435) of all potential bakers in cycle 17 have only one-to-two rolls," Obsidian's Reinhart told CoinDesk.
Obsidian Systems makes secure software for secure baking, with support from the Tezos Foundation. It's currently command line only software, but a graphical user interface is in the works.
It's not the only member of the community to do so. Stephen Andrews has also built BakeChain, free software for Windows computers available on Github.
Nevertheless, there are those who suspect the current architecture will tend toward centralization. Meltem Demirors of CoinShares, has critiqued the concentration of xtz among the very largest holders.
"There are a number of new services springing up, but we see the trend moving towards consolidation which is concerning," Demirors, who is a partner with a delegation service called Tezzigator, told CoinDesk.
Delegation ain't easy
"What we're seeing is people beginning to grasp the real implications of being an aggregator of proxy votes – it's expensive and only works at scale," Demirors argued.
The delegates that have dropped out haven't provided a lot of visibility into their reasoning, but one company providing the service offered its perspective on the challenges of the business.
Awa Sun Yin of Switzerland-based Cryptium Labs has 47 rolls in its baking node, as of this writing. Sun Yin identified three categories of challenges faced by a new delegation service, not all of which might be obvious out the outset. She broke them down into legal, infrastructure and development categories.
Not every new delegator might immediately realize that it's better to establish a legal entity. Once they have, that might persuade some to pull out.
Here in the early days of Tezos, she also pointed out that there's a lot of software updates to the protocol coming quickly that delegation services have to keep up with. Couple this with the fact that there aren't enough open source tools to automate all processes that could be automated for a delegator yet.
"The biggest struggle with maintaining the baking infrastructure is related to software upgrades," she wrote. "These releases are hard to foresee and sometimes the releases are critical, as they might have patched a security vulnerability."
In other words, it's just not as easy as setting up some code on a computer and letting it run.
That said, she added:
Building blocks via Shutterstock
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.