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Guide to Provenance Blockchain

January 26, 2022

Provenance Blockchain, the blockchain built specifically to support the traditional financial services industry, recently transitioned from a permissioned to a public blockchain.

An introduction to Provenance Blockchain

Provenance Blockchain is a public, permissionless proof of stake network built to support the traditional financial industry. The network has been seeded with specific use cases in mind, such as securitization, payment, and an alternative trading system, but can expand use cases indefinitely because of its modular design and smart contract capabilities.

Performing banking and financial services via a blockchain with smart contracts reduces costs and increases efficiencies. Capital can move quickly and technology can perform key tasks based on predetermined rules. Fees for both financial entities and their customers are therefore reduced, and deals can be completed in a significantly shorter period of time.

Provenance Blockchain was originally designed as a permissioned chain. In order to increase adoption, and allow new participants to onboard independently, Provenance Blockchain created and released a new public chain in June 2021. The new permissionless PoS chain is based on the Tendermint Consensus Algorithm. Coinbase Cloud is supporting Provenance Blockchain by providing secure validator infrastructure for those interested in participating in the network, and supporting the growth, security, and adoption of the chain.

Provenance Blockchain is designed around three core concepts:

  1. Modules are used to execute the complex financial services business logic required by its users. Examples include the Provenance Account, Marker, Metadata, and Bank modules. Additional modules can be developed for other uses as needed.

  2. A smart contracting engine (ProvWASM) is used to develop and deploy contracts directly on the blockchain.

  3. A Client Contract Execution Environment (P8e) allows for the use of off-chain client-side agreements in conjunction with on-chain data and contracts. This setup enables participating financial institutions to use private data with a public blockchain.

How to participate on Provenance Blockchain

As a Tendermint-based chain, Provenance Blockchain uses the PBFT proof of stake consensus mechanism in which validators in the active set are selected randomly to produce blocks. A validator’s stake weight determines how often it is selected to participate. For example, if a single validator has 10% of all staked HASH (Provenance Blockchain’s native token) on it, it will produce 10% of all blocks (on average).

The Provenance Blockchain active set is expected to start at 20 validators and increase over time. Tendermint-based chains can currently scale to a maximum of 125 validators, a number also expected to increase (up to 300) in the future.

There is no minimum HASH stake required to operate a validator. However, given the limited size of the active set, an operator will need to stake enough HASH to be larger than the smallest validator currently in the active set. There is no maximum stake on a validator so an operator need only run one node to optimize their participation.

Token holders can delegate their HASH to a validator at any time and re-delegate to another node without going through an unbonding period.

Rewards on Provenance Blockchain

Parameters

Token name

HASH

Initial token supply

100bn

Current token supply

30bn liquid

Expected inflation (pa)

No inflation

Active set of validators

20

There is no inflation on Provenance Blockchain. Nodes only earn transaction fees as rewards for participation on the network. Transaction fees are collected globally and distributed in proportion to stake, not based on the fees associated with the specific blocks produced by a validator.

Validators earn a validator fee on all the rewards earned by their node. This fee (called a commission rate on Provenance) is set by the node operator when configuring their node. The operator determines not only the initial fee, but also the maximum rate they can charge and the maximum change allowed per day. These details are provided to delegators so they can have complete transparency when selecting a node to delegate their HASH to.

Rewards do not compound automatically and instead must be withdrawn and restaked. Rewards are earned every block and their withdrawal is possible at any time.

Rewards are distributed to delegators pro rata net the validator fee that the operator charges for their services.

Two percent of all rewards go into the Community Pool which will be deployed based on the vote results of related governance proposals.

Risks of participation on Provenance Blockchain

As with other Tendermint chains, Provenance Blockchain enacts slashing for excessive downtime and double signing. Slashing punishments are applied proportionally to all tokens staked to the validator.

Behavior type

Criteria

Punishment

Excessive downtime

Missing more than 50% of 32000 blocks

1% of all HASH on the validator

Double signing

Proposing more than one block at the same block height

5% of all HASH on the validator

A slashed node is immediately removed from the active set and placed in a “jailed” state. If the slash occurred due to excessive downtime, the node can perform an unjailing transaction to remove itself from the “jailed” state after a minimum cooling off period elapses. Nodes that double sign can not be unjailed.

Governance on Provenance Blockchain

Governance on Provenance Blockchain mirrors the process on most Tendermint-based chains. Anyone can use a small HASH deposit to submit a proposal for a vote by all staked HASH token holders. Both node operators and delegators can vote on the proposals, however, delegators inherit the votes of the validator to which they are staked. They must purposefully override the inherited vote if they differ in opinion from their node operator.

Why run a Provenance Blockchain node?

As with all proof of stake networks, node operators help keep the network secure and functioning. Any party that uses the network extensively in provision of their business services has a distinct interest in providing that security themselves.

Beyond that, running a validator gives operators a loud voice in governance. Institutions that both use Provenance Blockchain and operate nodes on it have an opportunity to participate in decisions around topics such as parameter updates, like transaction fees increases. Given they both pay transaction fees and earn them by running a node, participating in the network's decision making process is of significant importance.

Why choose Coinbase Cloud?

Participate with confidence based on Coinbase Cloud's expertise and experience with Provenance Blockchain and other Tendermint-based chains including Cosmos, Terra, Oasis, and Crypto.org. This knowledge allows us to manage your node reliably and securely.

  • Participate with industry-leading security, including offline-generated validator signing keys and HSM-supported secure backups

  • Protect your validator nodes from DDoS attacks with our unique node architecture and Equinix-metal infrastructure

  • Manage governance and participation with insights and guidance from our protocol specialists

“We’re excited to collaborate with Bison Trails [now Coinbase Cloud], a leader in blockchain infrastructure, to provide infrastructure to Hash holders to run validator nodes on the network.” — June Ou, Executive Director at Provenance Blockchain Foundation.