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Understanding payment structures in Taiko’s self-sustaining blockchain network
For a network to be self-sustaining, there must be mechanisms in place to help regulate how things are done. This is especially important in the context of blockchains, where smart contracts enable reliable and transparent transactions taiko.mirror.xyz.
Different types of network participants play different roles to ensure that these complex systems function as needed. But there’s no such thing as a free lunch. Network participants must be somehow incentivized to fulfill their role. This is where payment structures come into play.
Today we’ll take a look at how different Taiko participants contribute to the network and what they can earn in return.
The life cycle of a transaction
Before we dive into how Taiko participants are rewarded, it’s essential to understand the basics of how a transaction works. On layer 1 (L1), Ethereum’s no-frills blockchain, a simple transaction involves sending 1 ETH from one account to another. The process involves a wallet, a transaction address, and a node that broadcasts the transaction to all of its peers until it’s included in a block.
Things get more complicated on level 2 (L2). For example, a transaction sent to a node could be a centralized or local infrastructure node. An entity collects all the transactions and the sequencer, managed by the L2 team, sorts them, potentially extracting value from the sorting changes.
Mempools, or transaction pools, play a key role here. They function as a blockchain node’s waiting room for queued and pending transactions. Mempools can be public or private, while private mempools are closed markets where private partnerships can earn extra rewards.
The Taiko transaction lifecycle
Taiko aims for equivalence with Ethereum, involving slower zk-proof generation. Transactions are first recorded in L1, defining the block order, after which the block can be proved. L2 nodes monitor the L1 state, essentially following what happens on L1.
The Taiko transaction lifecycle involves a smart contract on L1. Transactions are downloaded to the smart contract and the first person to call it gets the block. The person who calls the smart contract and publishes the block must add a proof within a specified period.
Unlike the Ethereum base layer, congestion fees in Taiko are not burned but go into Taiko’s treasury. The miner’s tip goes to the block proposer, who waits until the fees accrued in a block are high enough to cover costs and make a profit.
Taiko Network Participants
There are four main participants in the Taiko network: users, L2 block proposers, block provers, and L1 validators. Each participant pays a fee or receives a reward for their contribution.
Users
Users make a transaction, paying a L2 Taiko transaction fee set in terms of gas. The price of gas depends on congestion on the Taiko network.
L2 Block Proposals
L2 block proposers track the Taiko network mempool for transactions, collect them into a block, and submit it to L1 via the Taiko L1 smart contract. The first proposer to collect transactions and submit the block to L1 is rewarded with all priority transaction fees. Proposers pay the L1 transaction fee and must periodically withdraw the fees earned from L2 to L1 to cover L1 costs.
Block tests
Block provers generate validity proofs and attach them to blocks. They must pay the hardware costs needed to operate the infrastructure to demonstrate the cost of verifying the L1 proof. They receive a percentage of the commission proposers get for proposing blocks. The provers fee can be zero or in any token, including NFTs.
L1 Validators
L1 validators collect transactions, sort them, and create a block. They determine the order of Taiko blocks on L1 independently. Validators must stake, run a node, or delegate by staking one of the staking pools. They receive a hint from the L2 proposer.
The Taiko DAO
Instead of burning a portion of the fee, a portion of each Taiko transaction fee is sent to the Taiko DAO treasury. This allows the funds to be used for monetary policy, such as risk management. The percentage of the L2 fee allocated to the DAO depends on EIP-1559 and the current level of congestion on L2.
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