I can go on and on. For all of it's problems, PoW is simple and just works. It ensures that there will be constant supply of coins for sale and ensures that nobody can just become richer because they started rich.
I can go on and on. For all of it's problems, PoW is simple and just works. It ensures that there will be constant supply of coins for sale and ensures that nobody can just become richer because they started rich.
Right. In PoW, they need access to limited semiconductor supplies and cheap electricity. Which are two things that can be bought with...what was that stuff called...? Ah, yes: money! So PoW does just the same - the rich tend to get richer - but it adds the necessity to cause unnecessary environmental pollution on the scale of an entire country to it. Oh, and all the crypto holders pay collectively for that unnecessary "work". What a stroke of genius!
Rather, we should look at holders. Bitcoin is fair in the sense that it does not have rich get richer built in.
If I'm rich and own 1,000 BTC whilst some poor slum has 0.001 BTC, neither of us has an advantage within the protocol. The rich person does not get free extra coins just for owning lots, nor do they have any additional say anywhere within the protocol.
With PoS, just having lots of money means you get free new money, as well as an extra say in the protocol itself.
Further, you should speak of electricity consumption combined with the energy mix. Electricity consumption does not automatically translate into pollution.
Why would we care about "advantage within the protocol" while ignoring the whole world around it? A similar absurd description is: one person is holding $1B in their hands, another is holding $1 - neither has more say about the money nor any advantage within the system as long as they don't spend it. It's true, but not very meaningful - we do things with money we own.
Bitcoin's premise is scarcity and software-enforced rules that are equal to all. It isn't going to "fairly" distribute existing capital, that should go without saying.
I think the problem with PoS is not "rich get richer" but the lack of fair redestribution. In PoW miners are economically forced to sell their mined coins to pay for energy bills. This redistribution is fair as it happens on the free market (exchanges). This doesn't really happen in PoS.
Whereas staking is more like bringing fiat to the bank and collecting interest for doing nothing at all.
Still, you do have a point in the sense that if you're as wealthy as having 1,000 BTC, you have ample ways to further grow wealth. You could sell all BTC, go into real estate, take profit and buy back BTC cheaper. There's a million ways to grow your portfolio.
It's just that Bitcoin doesn't give you more Bitcoin based on wealth. Most Bitcoin held is not held by miners.
There seems to be this narrative where some people believe miners are minting and then holding all the coins, getting ever richer, but this is plain false.
It would be true with PoS though, so agree.
2. You're right that the rich get richer with PoW as well, but I think we can agree that the connection between existing wealth and increasing wealth is stronger with PoS--PoS is almost literally just a statement of "the rich get richer".
3. The "it adds the necessity to cause unnecessary environmental pollution" argument is simply incorrect. Much of existing mining is already done with renewable energy--it's the most cost-effective way to mine anyway in most cases.
2. That's the beauty of it! We arrive at the same result, but just skip the part where people need to buy tons of custom silicon that can't do anything other than burn energy for mining, and then burn energy. That part has a lot of not-so-nice side effects on the real world out there, from silicon shortage to environmental pollution.
3. It is entirely correct. Even if some mining in some places is done with renewable energy (which is far from the majority - otherwise: please provide proof for your statement regarding just "how much" mining is renewable-based), that renewable energy is removed from the market and thus can't be used to power other consumers, which then must use fossil-fuel based energy sources. It's not like there's not enough demand for energy in the world, especially of the renewable kind.
In a PoW system you have fierce competition and the drive to the cheapest energy. Which today is stranded energy, that the market would never buy.
It is hard to estimate what percentage is truly renewable. The biggest source of energy was hydroelectric. It is estimated that during rain season the renewable percentage is up to 70%. However even if you look at the lowest estimate of renewable energy (~25%) you get double the percentage of the best country.
Bitcoin is the true solution to monetizing cheap energy production. It removes a large risk associated with investing in renewables as the network is a buyer of last resort. Thus you know that your energy always sees 100% usage (which is a big problem with grids today)
Just a small thought experiment. Lets assume you want to build a charging station for EVs powered by your own solar farm at a somewhat remote location. 4 hours of the day you have a peak consumption of 100 units, the rest you only have 80 units consumption. Moving energy over large distances is incredibly expensive. Having a buyer for your energy (Bitcoin network) means that the investment carries a lot less risk.
2. Uh, okay.
3. You've significantly adjusted your statement from "it adds the necessity to cause unnecessary environmental pollution", which remains incorrect.
> (please provide proof for your statement regarding just "how much" mining is renewable-based)
I don't need to provide proof for things I didn't say.
Keep in mind that proof of stake as a trustless consensus mechanism is largely hypothetical at this point. All the major "live" implementations (Polkadot, Cardano, Tezos) have large numbers of trusted validators.
We agree that carbon emissions and other pollution are a problem. What we don't agree on is the solution to that problem.
> [R]enewable energy is removed from the market and thus can't be used to power other consumers, which then must use fossil-fuel based energy sources. It's not like there's not enough demand for energy in the world, especially of the renewable kind.
Wrong. The energy that's cheap enough to make mining profitable is cheap because nobody else wants it. In extreme cases, electricity produced in ghost cities in China will literally be dumped into the ground if it's not used by miners. It takes very little competition from consumers to make mining unprofitable.
- The energy could not have been transferred to reduce use of fossils
- The energy could not have been stored to reduce use of fossils
- Production of other, more necessary goods (batteries, aluminum, datacenters serving humanity in better ways) could not have been moved to the source of clean energy
To be clear, I'm not saying that all or even the majority of energy used to mine cryptocurrency is currently renewable. I have no idea what the current state of things is. What I'm saying is that if we're looking to solve the problem of cryptocurrencies producing carbon and other emissions, using renewable energy is arguably just viable a solution as PoS, without some of the security problems that PoS has.
I do know that some Bitcoin mining operations are investing heavily in renewables, and given the cost of fossil fuels, I suspect that will give them a significant advantage in the long run.
There is not a problem with shipping hydrogen from ghost cities in China. Neither is there a problem with running datacenters that we need for other purposes than Bitcoin.
We are currently failing at combating climate change; but to have a hope of avoiding the worst case scenarios, fossils need to be replaced with renewables at an unprecedented scale. Not only current electricity use, but also energy used in transportation. It's a huge undertaking, where you need to ramp as quickly as you can in every way you can.
The train is starting to finally move now, and in a few years, investment into renewables will not be the limiting factor. The limiting factor is how quickly it is possible to construct. Since the limiting factor is not investment; every kwh spent on Bitcoin is a kwh lost to combating climate change.
Okay, my apologies, I did respond a bit too glibly there.
> There is not a problem with shipping hydrogen from ghost cities in China.
There is the same problem with this that exists with many energy storage solutions: often the storage creates more carbon usage and other environmental effects than simply burning fossil fuels closer to the location where the energy is needed.
> Neither is there a problem with running datacenters that we need for other purposes than Bitcoin.
There are a bunch of reasons all the FAANG data centers are near population centers, but the two ones that are most obvious to me are:
1. Internet infrastructure is near population centers, because the people in population centers are the ones the internet it intended to connect to. If you want to hook into the backbone of the internet, you have to be located near the backbone of the internet. This is necessary for latency.
2. Data centers require technical maintenance, and technical workers capable of doing that maintenance tend to live in population centers.
> We are currently failing at combating climate change; but to have a hope of avoiding the worst case scenarios, fossils need to be replaced with renewables at an unprecedented scale. Not only current electricity use, but also energy used in transportation. It's a huge undertaking, where you need to ramp as quickly as you can in every way you can.
You're preaching to the choir here.
> The train is starting to finally move now, and in a few years, investment into renewables will not be the limiting factor. The limiting factor is how quickly it is possible to construct. Since the limiting factor is not investment; every kwh spent on Bitcoin is a kwh lost to combating climate change.
This is where we disagree, I think. There's a lot of limiting factors. Even if there's massive investment into renewables, there can always be more money and more efficient use of the money you have. One of the biggest inefficiencies of renewables is that they tend to be time-bound: as you probably know, wind produces the most at night, and solar produces exclusively during the day, and neither production cycle perfectly matches with the energy usage cycle.
(As you probably know), two popular areas of exploration here are storage and changing usage:
1. Every major storage solution either doesn't work yet, or is horribly inefficient in some way. Batteries are inefficient in output/input, and have downsides in terms of metal pollutants and disposal of retired batteries even when producing the batteries isn't the limiting factor. Gravitational storage requires huge amounts of space. Thermal storage simply doesn't work at scale yet.
2. Changing usage, i.e. running networked hot water heaters when other forms of usage are low, is a promising area of development, but so far the improvements in efficiency are very modest.
A third solution which I think you're maybe underestimating, is to simply produce more energy, and use the excess production at low usage times to mine bitcoin. The profits from this can be used for a bunch of purposes, for example to reduce the cost of renewable energy to consumers (thereby increasing adoption) or to build more renewable energy.
I'll add that while nuclear energy is not technically a renewable resource, it can be part of a strategy for reducing greenhouse gas emissions, which is arguably the most important aspect of renewables. Nuclear power solves a bunch of problems that renewables don't solve, but it also has the problem of mismatch with the consumption cycle: nuclear power production isn't cyclical like solar/wind, it's not adaptable: it's extremely expensive to spin up and down generation: there have been a bunch of times in Germany where it was cheaper for nuclear power plants to pay consumers to take their excess power than to spin down generation. Bitcoin mining has the potential to power consumption for nuclear power plants as well, which could greatly decrease the cost of running nuclear power.
So yes, you need money to mine, but whatever you mine, you pretty much have to turn around and sell it right away to cover your costs and keep a small profit.
But fortunately for the miners, crypto mining is rarely in that state of equilibrium. In reality, mining does allow for a hefty profit margin to be reaped most of the time. Ask the miners if you don't believe me, they're not exactly used to just making "small profits". And who pays for that profit margin? Crypto holders and those making transactions with it - again!
However you want to look at it, this coin looks crappy from both sides. Unless you're a miner.
Depends on what you are comparing to. For me, Bitcoin is easier to understand than the fiat system we are currently using, and that's why I'm heavily invested in to it.
In addition to miners making huge profits, there have been also cases where miner operations have turned sour, KnC Miner being one example.
Yes, there might be better systems out there. But BTC has very clear and simple protocol rules which are easy to understand, and it has properties which are very lucrative (permissionless, decentralized, limited supply, easily verifiable and transferable and so on). Other consensus mechanisms fail to deliver their promise in as effective way.
In fact, arguably PoW is worse, because it has economies of scale that PoS does not have, so the rich truly do have an edge in PoW.
PoW requires constant investment or you'll be left behind.
From what I've seen, the main purpose of like 90+% of altcoins is to benefit their developers and investors and they'll likely all die and disappear.
They shouldn't, what Bitcoin is enabling is the ability for whoever to use whatever kind of coin they want. Bitcoin opened the whole pandoras box where anyone can create their own coin if they want.
However, for each crypto coin there is clear incentive to make the coin more useful in transactions, both for those more well off and for those less fortunate. Typical BTC holder wants to make BTC useful for everyone, because that adds value for their holdings. That usefulness might add value to those less well-off. If not, they can use something else - in the end there is more choice in the marketplace which should (in theory) benefit everyone.
Just taking a stab at it, maybe bc we haven't come up with a notion of how a viable crypto-coin could be started by the least well off, who are -by definition- at a competitive disadvantage in launching successful projects.
I'm not saying it's an impossible problem, just that these systems tend to be driven by economies of scale, whether it's new/disruptive, or the product of an older, more established regime.
And to be clear, I am not suggesting this with the finality of a foregone conclusion, but merely thinking aloud about the dynamic of the underlying problem.
And that is great news for crypto holders, cause that means PoS rewards can be way smaller than PoW rewards, which means less devaluation of existing coins and lower transaction fees!
Staking coins just means clicking a button and receiving a financial yield proportionate to your initial investment. Simply showing up with money on day one is enough to earn money on your money.
People financially invested in staking frequently pretend like button-clicking auto-yield is the exact same thing as A) procuring powerful computers which rapidly become obsolete year after year, and B) paying for electricity and hosting facilities for those computers over a long period of time. But the difference between the two scenarios is night and day, and no amount of waxing poetic over “commerce favoring the well-funded” will change that fact.
To act as if staking has exactly the same economic properties as mining is false equivalence.
Staking is not all that profitable, really. The rich get richer at a rate which is comparable to a Vanguard ETF but the price volatility is much higher than a Vanguard ETF.
When rich, with POS, you need to do nothing at all. No investment, no risk, no competition, you can just park your money and tap new money.
With PoS, you do nothing except maintain your staking hardware and burn the time value of the money you are staking.
From that perspective there is no difference. The difference is that with PoW, the richest participants can afford the most efficient hardware, giving them a super-linear advantage. In PoS, it's still true that the "rich get richer", but only at a linear rate, since there is no way to improve the efficiency of staking (which is basically the best you could ask for).
It is like, imagine if USA had written in the constitution that the rich should get richer? Would you defend that move by saying "Well, the rich gets better investments anyway so this wont make a difference!".
It is a "fundamental law" in both PoW and PoS that you get rewarded for doing the work/staking. I don't really understand your point about the US constitution -- what I am saying is that PoS systems minimize the effect of the "rich getting richer" as much as possible by forcing it to be at most a linear effect. Whereas there is no need to include such language in the US constitution at all.
If I invest in Bitcoin and its price increased by 10%, I did not lose money if it turned out that real estate would have gained by 20%. I still gained 10%. Actually, only if I sold it.
That's not "losing money", it's not maximizing returns.
Further, you're still missing the double effect of staking. With staking your portfolio value will depend on the price of the token, yet since you staked it (it's locked up), it's a paper win/loss. Further, regardless of that, you get NEW coins for free.
Further, it's not linear at all. It's whatever the token does, which can be linear, parabolic, anything.
You are right that you wouldn't normally consider alternate investments like that. But with PoS, where the only cost is the time value of the money staked, it is the only thing to compare.
If you reason like that, I suppose in your world fireworks is the same thing as a rocket bringing us to Mars?
Is running Amazon and making a profit the same thing as just milking interest from a bank account?
These differences aren't trivial, they are massive. In a PoW world, most rich people don't mine, they just hold the crypto. In a PoS world, said rich people auto-mine by just holding crypto.
No, what I am really saying is that PoW mining and PoS staking aren't so dramatically different in complexity like you are saying. They are actually both complicated businesses with variable yields. The only difference is that with PoW, the benchmark is electricity cost, whereas with PoS the benchmark is the other investments which you could have invested your staking money into.
When’s the last time a billion dollar staking operation had to build multiple mining datacenters and fill them with hundreds of millions of dollars worth of hardware? That’s just not required for staking. It just isn’t. They’re not equivalent operations. Not in any way. Not by any stretch of the imagination.
Which of these two scenarios seems to favour the rich, in your mind?
I would say it’s harder to compete with miners than stakers.
There’s really no comparison. Running a business with high fixed and variable costs, and considerable competition is far more difficult to pull off successfully than a passive investment. Which one do you think favours a “gilded elite” more?
Putting money in a bank isn't even enough to keep up with inflation at the moment, the same is true for Proof of Stake coins, too.
The actual security relies on obfuscated proof of stake - how hard it is to attain enough mining hardware. Even so, attacking bitcoin is relatively cheap - even starting from zero, few billions are enough to order mining chips from a fab and organize mining warehouses with enough power to 51% the network. The reason it didn't happen is because there's not enough genuine economic activity on btc to profit from it - the worst you could do is try to steal other crypto from several exchanges, but given that they all require kyc today and the impossibility of hiding such a big operation, it's extremely unlikely to turn out profitable. If btc ever becomes widely used - for example, by Iran to sell their oil, to the point that freezing their btc bankrupts the country - attacking btc may become a military objective, and given the cost involved it would be trivial for the US military. They could leverage all Western owned mining facilities trivially, by telling them to enforce OFAC sanctions - chances are they wouldn't even have to build any mining facilities themselves.
Another way to summarize this is: PoW only works for bitcoin as long as it remains a speculative toy.
Such an attack is impossible in PoS, because unlike mining chips, acquiring enough staking tokens is simply impossible for sufficiently distributed coins - there isn't enough for sale and most owners are anonymous, making sanctions unenforceable. For this reason PoS is the only existing consensus system that can actually support something widely used for real world commerce.
Further more you're quip about Bitcoin being unable to scale its security past use as a speculation asset, which as I point out above applies to any PoS asset (perhaps even more so), is also context deficient. Bitcoin's value will increase when mining is more decentralized (which is heuristically determinable enough to take the risk), which will increase mining decentralization. Many large mining setups today could have 51% attacked Bitcoin through most of its history, but they weren't around then. Bitcoin's mining grows just as the price grows, when people are willing to believe in its market value.
There simply isn't enough for sale. Premium - premium to what? Try to buy 10M eth after mining is gone and price is going to increase several times. Staked amount is constantly increasing and eventually I expect most of eth's supply to be staked.
Even if an attacker somehow acquires enough stake, everyone else can simply fork them out. That's not really possible in PoW - a fork from an asic PoW to a gpu PoW is possible, but it would start with negligible security, and most likely the attacker would secure enough gpus before the (asic) attack to kill the fork. Nothing can be done after a gpu/cpu PoW chain is controlled by a censoring attacker.
>rational actors will sell to the highest bidder, who may be anonymous
Unlike bitcoin, staked eth generates yield, so the principal doesn't have to be sold - ever.
>Bitcoin's value will increase when mining is more decentralized (which is heuristically determinable enough to take the risk), which will increase mining decentralization.
Not sure what was the intention of this sentence - that as bitcoin goes up, mining decentralizes? In any case, mining has infinite economies of scale so it always centralizes. The recent China ban accelerated the process, most likely in the much more dangerous direction - with majority of mining to be done in America or under American control. So far, only America sanctioned crypto addresses, and there are already some American miners that explicitly enforce them.
This is painful enough that most people will happily outsource it while collecting yield. What will almost certainly happen is ETH holders will self-organize into a handful of large well-connected staking pools run by exchanges. Heaven forbid your exchange gets hacked or goes offline.
This is only true in the absence of software bugs. In the presence of buggy node software, a worm can spread through the network, compromising all the private staking keys. In this way the whole network can be subverted by gaining access to secret information (private keys). This attack is not possible with PoW.
You could have a PoS currency that would initially distribute all coins evenly across the globe (that would be a really cool experiment). But yeah I don't like PoS either.