Have you ever wondered how a blockchain can seamlessly merge the best of both Proof-of-Work and Proof-of-Stake consensus mechanisms? Let me introduce you to Meter Protocol!
Meter protocol, also known by the market tickers MTR and MTRG, is a fully decentralized, permissionless, layer-1 blockchain composed of both Proof-of-Work and Proof-of-Stake elements.
At its core, Meter looks to offer secure, fast, and reliable transactions by combining the best of both consensus mechanisms.
But how exactly does that all work? And how is it possible to combine Proof-of-Work and Proof-of-Stake all in one blockchain?
What is Meter?
Meter was founded by Xiaohan in 2018, with the Meter blockchain itself going live in 2020.
Meter is a layer-1 blockchain, meaning it is the foundation from which applications on the network are built, similar in function to Ethereum.
Perhaps most interestingly, Meter separates the cryptocurrency creation process and the cryptocurrency record-keeping process, and as a result has led to the creation of two crypto tokens, MTR and MTRG.
An easy way to think of this would be to imagine miners and bankers in the real world.
Miners collect the resources from the ground, but it is bankers who maintain the financial system.
So, MTR and MTRG, what’s the difference?
MTR represents the economic consensus while MTRG represents the record-keeping consensus.
Essentially, MTR is mined and can be used for payments, fees, and trading for MTRG. Whereas MTRG is auctioned and can be used for staking and governance.
But, to really get into it, I should probably explain how Meter works.
How does Meter work?
Unlike blockchains I’ve covered previously, Meter uses a consensus mechanism known as Proof-of-Value, which is a hybrid of Proof-of-Work and Proof-of-Stake.
Though so we’re all on the same page, I’ll quickly explain what Proof-of-Work and Proof-of-Stake are.
Under Proof-of-Work, miners compete to solve complex mathematical puzzles, requiring significant computational power.
The first to solve it confirms the transactions and is rewarded with cryptocurrency for their effort.
Proof-of-Work is highly secure but consumes substantial amounts of energy as the entire network is competing, and thus using energy to try and be the first to solve the puzzle for the reward.
On the other hand, under Proof-of-Stake, validators are chosen semi-randomly to create and confirm blocks based on the amount of cryptocurrency they hold and are willing to stake, meaning deposit, as collateral.
Proof-of-Stake is far more energy-efficient than Proof-of-Work as validators are chosen, which allows for better scalability and quicker transaction finalization times.
So, how do they work together?
In short, they don’t.
They work independently and only interact to confirm consensus between them about once a day.
However, there is a system that allows miners to trade the recently mined MTR for newly released MTRG tokens, which is how they connect together.
To get MTRG there is an auction process that occurs each day.
The system itself is quite complex with the tokens being allocated for auction coming from a source created during their initial token distribution, and unsold tokens and part of the proceeds being recycled back into the ecosystem.
But what really makes Meter unique?
What makes Meter unique?
In short, it is the hybrid model of combining Proof-of-Work and Proof-of-Stake, but doing so in a way that is less energy-intensive than traditional Proof-of-Work, and more secure than traditional Proof-of-Stake.
Additionally, another unique feature is the price of MTR is correlated closely to its production cost, which will be the average cost of 10 kilowatt-hours of electricity using mainstream mining equipment, at least according to the Meter website.
Also according to their website, Meter is likely to see further improvements to its energy efficiency thanks to Moore’s Law.
To keep it short, Moore’s Law is an observation that states the number of transistors on a microchip doubles approximately every two years, leading to a consistent increase in computing power and performance while decreasing the cost of electronics.
Simply put, that is, at least in theory, every 24 months, the amount of energy required for the same amount of processing power should drop by half, making Meter more energy efficient as time progresses.
Now that we know what Meter is, how it works and what makes it unique, let’s explore the Tokenomics of the MTR and MTRG tokens.
MTR – MTRG Tokenomics
Well, Meter is a little different to your average cryptocurrency here, too.
This is because MTR and MTRG don’t have a maximum supply cap, and are technically unlimited, but in practice the Meter system is designed to produce only what is required to run the network, thus making it neither inflationary nor deflationary overall.
This means the annual amount of the MTR production should be almost equal to the annual GDP growth of the network.
Fundamentally, Meter uses the cost of production and Proof-of-Work miners’ arbitraging nature to set a long-term price for the market.
Though to supply the ecosystem, and to keep it operational without the need for human oversight, the Meter protocol relies on a MTR reserve to ensure the MTR price remains stable.
One way it achieves this is through the auction of MTR for MTRG, where the proceeds from each day of auctioning get split 40/60.
The amount to be auctioned is determined by a complex formula, but of the proceeds, 40% gradually gets fed back to validators as blockchain rewards over the next 24 days, with the remaining 60% going into the reserve.
This reserve is collectively owned and operated by MTRG token holders, who get to vote on its uses via the governance.
At launch, 70 million MTR tokens were released, and they break down as follows.
30 million were locked away by the Foundation to fund the future growth of the Meter ecosystem.
And the remaining 40 million was allocated or sold off during various funding rounds.
Though, most perhaps interestingly is the 3 million tokens that are mapped to the Ethereum blockchain as an ERC-20 token called eMTRG so it can participate in the Ethereum DeFi ecosystem.
Meter: Bridging Proof-of-Work Security and Proof-of-Stake Scalability
Meter really does try to do things differently, and when it says it is trying to combine the best of Proof-of-Work and Proof-of-Stake, it really means it.
On a technical level, Meter is impressive. It appears to have created a blockchain that is as secure as Proof-of-Work, but as scalable as Proof-of-Stake.
However, it’s not always the best projects or the best tech that wins.
Ultimately it’s all about whether Meter can convince developers, and then users, to come join its network.
If it can, the value of Meter will likely go up. Though, as we all know, nothing is ever guaranteed in crypto.