In preparation for the upcoming Betanet launch, and subsequent Mainnet launch, Tezos founder Arthur Breitman released a lengthy article today on the topic of baking. There have been numerous questions surrounding some of the details such as required bond amounts, how bakers are selected, and what kind of rewards can be earned from participating in the process. There have also been questions regarding the risk of forfeiting the bond if a baker acts improperly, either by intention or accident. Many of these questions were answered in Arthur’s blog post which is a great read for anyone interested in learning exactly how the Tezos Baking process functions.
In contrast to Bitcoin mining, Arthur explains, “block creation is done by bakers” which obtain baking rights “when a Tezos token they own is randomly selected to create a block.” The tokens are stored in large collections refereed to as “rolls.” Bakers will be made aware several weeks in advance of upcoming blocks which they have been randomly selected to bake.
Bakers will need to maintain safety deposits of approximately 8.25% of total tokens delegated to them. Arthur lays out these examples to explain how many tokens delegates are required to hold at any given time. The amount required can change and depends on several variables such as the number of total number tokens currently being held for baking:
In practice: suppose 100% of tokens are baking or delegated to active bakers, and suppose a baker has received delegation for 1,000,000 ꜩ. They would need to hold about around 80,250 ꜩ, at all times, in safety deposits. They would receive about 55,000 ꜩ per year in block and endorsement rewards, not to mention transaction fees.
However, if only 40% of the tokens are actively creating blocks, this baker would create 2.5x more blocks. Thus, they would be needing around 200,625 ꜩ in deposits but would be receiving around 137,500 ꜩ.
These calculations do not take into account costs involved with operating servers, user errors, network disruptions or software bugs.
To help bakers and delegate services get started, the safety deposit requirement will ramp up “linearly from 0% to 8.25% over a period of six months,” according to Arthur. We can assume this six month period will last until sometime in December of 2018 assuming the Betanet launches toward the end of June.
One question that has been asked involves how much computer power is required and/or recommended to operate a baking node. Since bakers are tasked with securing the network, a solid internet connection is recommended with highly available servers dedicated to the task of baking.
In terms of computer processing power, Arthur states that at the start of the network, the emphasis will be on correctness rather than throughput, which means the requirements for computing power are fairly low. The amount of RAM, however, is advised to be at least 8 gigabytes.
Security is also highly emphasized by Arthur since bakers are responsible for securing the network. Bakers must take security seriously and follow best-practices when it comes to network operations. Arthur explains the most important vulnerabilities to protect against include DDOS attacks, theft of private keys and preventing intrusion from potentially compromised computers on the baker’s local network.
Beyond the network and hardware requirements, a general level of knowledge will be required to run a successful baking node in the early days of Tezos. Arthur states that a good baker will need to maintain contact with Tezos developers “to make sure they are ready to apply security patches quickly,” should the need arise. Running a baking node will require constant monitoring and the ability to react quickly as the network grows and expands, especially during the Betanet period.
Head over to Arthur’s Medium page and read the full article for a greater understanding of the baking process.