Comment by 1053r | Hacker News Reader

Comment by 1053r | Hacker News Reader

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This article is full of problems, but the biggest one is failing to look at the global perspective:

While it is true that an individual miner/validator will be indifferent to spending money on electricity and mining equipment vs. purchasing coin to stake with, the difference between the two is a meaningful to non-miners/non-validators.

In the mining case, the miner is purchasing equipment and electricity that divert real resources away from the production of other goods and services.

In the validating case, the validator purchases coin, which causes prices of that coin to adjust upward. The economy keeps producing the exact same goods and services as if the validation activity did not exist (after a short dislocation, which would be very short in this case because few contracts are denominated in cryptocurrency).

So "nothing is cheaper than proof of work" is a true statement if you are a miner/validator. However, it is a false statement if you are cryptocurrency designer.

Obviously, it is easy to design a coin which is MORE wasteful globally than BTC. Instead of running on electricity and hashing, make it run on proof of extinction (verified in major newspapers) of critically endangered animals. The miners will spend time and energy doing terrible things to the planet, but they will spend no more money time or energy on it than they would have spent on electricity and ASICs. Why should it be impossible to design a currency that is LESS wasteful than proof of work?

I recommend against reading the truthcoin.info blog in general. This kind of wooly headedness is widespread, and the writing style is obtuse enough to make it hard to figure out exactly why the author is correct or incorrect.

Edited for grammar/clarity.

>>In the mining case, the miner is purchasing equipment and electricity that divert real resources away from the production of other goods and services.

>>In the validating case, the validator is purchasing coin which simply causes prices to adjust and the economy keeps producing the exact same goods and services as if the validation activity did not exist (after a short dislocation, which would be very short in this case because few contracts are denominated in cryptocurrency).

The value diverted to coin purchases ultimately has a cost in goods and services. It diverts economic activity to non-economically productive activity in cycling capital into and out of deposits, which results in less liquidity.

I think Proof of Stake could potentially be better than Proof of Work, but the point about cost being equal across validation methods is correct in general in my opinion. There are specific circumstances where it is not true, like if producing the mining resource creates negative externalities.

Where I think the article is wrong is in neglecting other aspects of consensus algorithm efficacy, like the potential security benefits from Proof of Stake totally aligning the incentives of owners of mining capital (which in the case of PoS is the network coins) with the success of the network.

>>The value diverted to coin purchases ultimately has a cost in goods and services

This is incorrect, or rather it is incorrect that it is different from the Proof of Work example, so it should be discarded from the analysis.

Scenario 1) I work a paper route to purchase ASICs and electricity to bootstrap my mining business. The world got paper delivery out of me, and consumed some strained silicon and electricity for mining, which raised the costs of electricity and mining for other uses.

Scenario 2) I work a paper route to earn ETH to validate. The world is the same as in Scenario 1, but the strained silicon, fab time, expertise, electricity, etc. all went to work on other projects instead of mining equipment, leaving the world slightly richer. (Perhaps a startup was able to purchase microcontrollers for their new widget at slightly lower cost, improving the return on investment for their founders.)

Again, from a miner/validator perspective, PoW and PoS are the same, but from a global perspective, they are not.

>>Scenario 2) I work a paper route to earn ETH to validate. The world is the same as in Scenario 1, but the strained silicon, fab time, expertise, electricity, etc. all went to work on other projects instead of mining equipment, leaving the world slightly richer.

I provided a counterargument to this:

>>It diverts economic activity to non-economically productive activity in cycling capital into and out of deposits, which results in less liquidity.

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