1/22) Proof of Stake (PoS) is superior to Proof of Work (PoW) in every meaningful way.
Looking at these consensus algorithms objectively, from the standpoint of economics, security & decentralization.
The conclusion remains obvious that PoS has all of the advantages over PoW:
Looking at these consensus algorithms objectively, from the standpoint of economics, security & decentralization.
The conclusion remains obvious that PoS has all of the advantages over PoW:
2/22) Economics:
Proof of Work carries with it a massive cost in arbitrary computation almost completely absent when compared to Proof of Stake.
This cost has to be reflected in either fees or inflation to pay for its long term security.
Proof of Work carries with it a massive cost in arbitrary computation almost completely absent when compared to Proof of Stake.
This cost has to be reflected in either fees or inflation to pay for its long term security.
3/22) PoW externalizes the cost of validation by requiring a massive amount of hardware and electricity to secure the network.
All to solve arbitrary mathematical equations that do not directly benefit the network itself.
All to solve arbitrary mathematical equations that do not directly benefit the network itself.
4/22) PoS on the other hand, leverages the value of the token itself to secure the network, resulting in a far more efficient means to gain high blockchain security.
5/22) PoS is economically superior since without this massive arbitrary computation cost, its token economics can have far lower fees and or inflation in all variations of the design, due to this increase in efficiency.
6/22) Security:
Cost expenditure is already much lower with PoS as pointed out above, so if all else is equal PoS is more secure based on that alone
However, if we create an attack scenario and calculate the cost of attack of a PoS vs PoW system, the results are very dramatic:
Cost expenditure is already much lower with PoS as pointed out above, so if all else is equal PoS is more secure based on that alone
However, if we create an attack scenario and calculate the cost of attack of a PoS vs PoW system, the results are very dramatic:
7/22) Take for example a $100B PoW network, using historical BTC figures from 2020 while rounding down.
We can assume that there is about $2B paid out to miners each year to secure the network. Therefore a 51% attack on such a network would cost at least $1B per year.
We can assume that there is about $2B paid out to miners each year to secure the network. Therefore a 51% attack on such a network would cost at least $1B per year.
8/22) Taking a $100B PoS network as our next example, assuming a 50% staking ratio
It would require at least $25B to attack, based on the cost to buy half of all staked tokens
Therefore our PoS network is 25x more expensive to attack when compared to an equivalent PoW network
It would require at least $25B to attack, based on the cost to buy half of all staked tokens
Therefore our PoS network is 25x more expensive to attack when compared to an equivalent PoW network
9/22) Decentralization:
In PoW today it is not financially viable for an “average” person to participate in mining.
It requires economies of scale and at minimum several hundred thousand dollars if not closer to a million for the initial investment.
In PoW today it is not financially viable for an “average” person to participate in mining.
It requires economies of scale and at minimum several hundred thousand dollars if not closer to a million for the initial investment.
10/22) PoW also requires access to cheap electricity, often derived from connections and high value deals with electricity providers in particular jurisdictions.
Making participation in PoW extremely exclusive, with a small number of distinct parties being able to participate.
Making participation in PoW extremely exclusive, with a small number of distinct parties being able to participate.
10/22) PoS on the other hand allows “average” people to participate through staking pools, for as little as 0.01 ETH (($19) at the time of writing).
This is not a false equivalence to PoW, since pools are an absolute necessity in PoW where no more than 50 pools can even exist.
This is not a false equivalence to PoW, since pools are an absolute necessity in PoW where no more than 50 pools can even exist.
11/22) In terms of financial viability (due to variance), unlike PoS where unique validators already exceed 38k over the ETH beacon chain today (based on IP and address aggregation estimates).
In PoS, the financial return is equalized for all participants, unlike PoW,
In PoS, the financial return is equalized for all participants, unlike PoW,
12/22) Where participants with the greatest economies of scale and lowest electricity rates gain a disproportionate profit.
This all means that PoS consensus algorithms can support a much larger number of distinct parties carrying out validation when compared to PoW.
This all means that PoS consensus algorithms can support a much larger number of distinct parties carrying out validation when compared to PoW.
13/22) This greater distribution of power/validation is the very definition of decentralization in blockchain design.
Therefore, based on the comparison in the previous section and assuming an equal block reward, PoS is fundementally far more decentralized than PoW.
Therefore, based on the comparison in the previous section and assuming an equal block reward, PoS is fundementally far more decentralized than PoW.
14/22) Lowering the barrier for participation and allowing for a much larger amount of unique validators is what allows for this greater distribution of power.
As the real power in blockchain governance lies with the ability to create blocks.
As the real power in blockchain governance lies with the ability to create blocks.
15/22) Simply running non-staking or non-mining nodes does not carry with it much influence in comparison, as these are not Sybil proof mechanisms.
The equality of opportunity is also significant in terms of decentralization as this avoids further concentrations of power.
The equality of opportunity is also significant in terms of decentralization as this avoids further concentrations of power.
16/22) A more competitive miner under PoW can earn significantly more, allowing it to scale its operations faster than competitors.
This is compounded with centralization in chip manufacturing, as there are only several chip foundries operational in the entire world at one time.
This is compounded with centralization in chip manufacturing, as there are only several chip foundries operational in the entire world at one time.
17/22) Greater decentralization means we have a superior form of governance in PoS within the context of cryptocurrency.
It is not just that there is greater decentralization but also a superior alignment of incentives with the stakeholders.
It is not just that there is greater decentralization but also a superior alignment of incentives with the stakeholders.
18/22) This is because PoW creates a separate “ruling class” from the stakeholders themselves, whereas PoS combines these actors into a single party.
Naturally leading to a better alignment of incentives between parties.
Naturally leading to a better alignment of incentives between parties.
19/22) One of the mismatches of incentives I explored in my “Theory on Bitcoin Governance; Three Stage Model”
Is that miner incentives are too short-term, having time horizons between 2–5 years based on hardware shelf-lives and electricity contracts.
medium.com/cyber-capital/…
Is that miner incentives are too short-term, having time horizons between 2–5 years based on hardware shelf-lives and electricity contracts.
medium.com/cyber-capital/…
20/22) PoS on the other hand does not suffer from this problem as consistently, comparing time horizons of investors against industrial mining.
Investors are much better positioned for long-term decision making. Potentially solving this specific problem in blockchain governance.
Investors are much better positioned for long-term decision making. Potentially solving this specific problem in blockchain governance.
21/22) PoS presents us with a clearly superior alternative to PoW, in every meaningful way.
PoS is truly a more economically efficient, secure, fair, inclusive and decentralized alternative to PoW. There are a lot of vested interests to overcome in the transition to PoS.
PoS is truly a more economically efficient, secure, fair, inclusive and decentralized alternative to PoW. There are a lot of vested interests to overcome in the transition to PoS.
22/22) This is an obvious case of a far superior technology competing directly with a far inferior technology.
Historically this means that it is just a matter of time for the popular narrative to shift towards this inevitable truth.
( Adapted from: medium.com/cyber-capital/… )
Historically this means that it is just a matter of time for the popular narrative to shift towards this inevitable truth.
( Adapted from: medium.com/cyber-capital/… )
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