“Bakers” is a term used in the world of cryptocurrency, specifically in the context of blockchain networks that use a proof-of-stake (PoS) consensus mechanism.
To explain this concept to a crypto newbie, let’s break it down into simpler terms:
- Proof-of-Stake (PoS): First, understand that cryptocurrencies like Bitcoin use a consensus mechanism called Proof-of-Work (PoW) to validate transactions and secure the network. PoS is an alternative approach. Instead of miners solving complex mathematical puzzles (PoW), PoS relies on validators who hold and ‘stake’ a certain amount of cryptocurrency as collateral to secure the network.
- Validators: In a PoS blockchain, validators are responsible for creating new blocks, verifying transactions, and maintaining the network’s integrity. They are akin to miners in PoW, but their work is different.
- Bakers: Now, let’s get to the term “Bakers.” Bakers are essentially validators in the Tezos blockchain. Tezos is a unique PoS blockchain that uses a delegated PoS system. In this system, token holders can delegate their tokens to a baker, who is responsible for validating transactions and creating new blocks.
- Delegation: This is a key concept. In Tezos, anyone who holds Tezos tokens (XTZ) can choose to delegate their tokens to a baker. When you delegate your tokens, you’re not transferring ownership; you’re simply allowing the baker to use your tokens to participate in the consensus process.
- Rewards: Bakers are motivated by rewards. They earn XTZ tokens for their work, and this is shared with those who have delegated their tokens. The rewards are typically a percentage of the baker’s earnings, and this allows you to earn passive income without actively participating in network validation.
- Security and Decentralization: Bakers play a critical role in the security and decentralization of the Tezos network. They are financially incentivized to act honestly, as they have their own XTZ tokens at stake. If they validate fraudulent transactions, they can lose their collateral.
