Proof of Transfer (PoX) is the first consensus algorithm between two blockchains. Specifically we present an implementation of PoX by using Bitcoin as the base chain and Stacks as the connected chain. In PoX, leader election happens on the Bitcoin blockchain. Instead of burning electricity on proof of work, PoX reuses already minted bitcoins as “proof of computation” and miners represent their cost of mining in bitcoins directly.
Proof-of-Transfer itself can be broken down into two main pieces: Mining and Stacking. Instead of consuming electricity all over again, miners forward BTC to the network for the chance to lead a block and mine Stacks tokens (STX). This also means mining is accessible and feasible to anyone with BTC. Stacking then makes up the other half of the mechanism where the protocol redistributes the BTC committed by miners to qualified STX holders.
For STX Mining, STX miners bid for becoming the leader of the next round. The protocol selects the winning miner (i.e., the leader) of a round using a verifiable random function (VRF). The leader writes the new block of the Stacks blockchain and mints the rewards: newly minted Stacks for the block, fees for smart contracts and transactions.
STX holders can participate in consensus and earn BTC rewards by participating in Stacking. To participate, users lock their STX for a reward cycle (approx two weeks), run or support a full node, and send useful information on the network as STX transactions. STX holders who actively participate in Stacking earn the Bitcoin rewards of that cycle. Unlike proof of stake, there is no risk of slashing (economic penalties by protocol) for STX holders.