How does
proof-of-loss address the nothing at stake problem?
- Transferring money requires transaction rights, which cost fees.
- Each transaction consumes hence loses exactly as much in rights as its total size in bytes.
- The spendable outputs of each transaction represent that loss.
- The odds of chaining a block depend on the loss each of those outputs represents.
- The reward for chaining each block is transaction rights instead of their price (in fees).
- This reward is only saleable (for fees) in subsequent blocks.
- If the same spendable output tries to chain two different blocks at the same height, then its earned rights are inherited by the spendable output chaining a child of either block.
This algorithm forces people to serially rather than parallelly chain blocks (forcibly serial chaining in the paper).