1 min read

Kiss your deposit goodbye

Renting an apartment? You're going to need enough cash on hand to cover first and last month's rent, plus a security deposit. The total amount varies a lot between apartment buildings, but the practice is pretty universal (at least here in the US). The point of the security deposit is to cover the cost of any damage to the apartment that you might cause... right?

Typically, your security deposit isn't enough to cover serious damage. The real purpose is to align incentives for the landlord and tenant. Renters tend to cause damage to the building and not care much because it's not their property. Most people are reasonable and not too malicious, but a small amount of damage is normal. With a deposit, the landlord and tenant now have shared risk. You don't want to wreck the place because you want your deposit back.

Additionally, the landlord now has a zero interest loan for the duration of your lease. These types of arrangements are generally better for the landlord, but they're also putting more at risk.

This deposit mechanism is a lot like Proof of Stake consensus. You're effectively staking your deposit for the opportunity to reap additional benefit. You still need to do more--keep the apartment nice (or run a mining node for the blockchain). This comes with additional cost in the form of monthly rent (or electricity to keep the node operational). The benefit is a place to live (or new tokens as profit). And if you don't do your job right, you lose your deposit (or have your stake slashed).


P.S. Of course, Proof of Work, Proof of Burn, and all the rest will require their own analogies...