What is a federation?

Summary

A federation is an entity that custodies bitcoin in a distributed fashion and issues eCash against it.

In Detail

A federation is a group of servers managed collectively by individuals known as guardians that collaboratively run the Fedimint protocol. A federation custodies bitcoin in a distributed way + issues an equivalent amount of eCash against it for the purpose of keeping transactions private.

Though configurations vary, each server is typically run by an independent guardian, or custodian. Guardians keep their servers running by ensuring they are connected to power & the internet. 

The Fedimint protocol uses Byzantine Fault Tolerant (BFT) consensus, which means the system can keep operating if one or more servers go offline – so long as a minimum number (a threshold) remain active. 

For instance, in a 3-of-4 federation, only 3 out of the 4 servers need to be online for the federation to function. If one guardian’s server goes down, the federation can still operate until it’s brought back online. This fault tolerance makes federations anti-fragile as they can recover from partial failures. 

By distributing custody across multiple guardians, Fedimint federations provide a decentralized way for individuals to manage their money while protecting their privacy. Federations provide individual wallets for their users, and these wallets are how federations are represented inside the Fedi app.

While a federation can be used by many people, the wallets it issues are unique to each user. Wallets, in turn, hold balances - a Bitcoin balance and a Stable Balance.