- Fixed costs that act as barrier of entry
- Economies of scale that lead to centralization
- Geographic factors (operation costs being different in different parts of the world, regulation/taxation, supply chain...)
This is how I see each factor playing out in both scenarios:
- Fixed costs: PoS runs on consumer-grade hardware, while PoW requires specific HW (ASICs or high-grade GPUs). PoS requires a minimum amount of stake but there are pooling solutions, which effectively make this minimum non existent. All in all PoS is at advantage here, unless you want to insist on solo staking in which case PoW is at advantage.
Analogy: This would be equivalent to flat fees to open a savings account or a minimum amount balance required to open it.
- Economies of scale: In PoS they are almost non-existent. You don't stake more efficiently by having a more powerful machine. You just get to reuse the same HW for more nodes but since fixed costs are low this has a very small impact. In PoW there are economies of scale, though, better/more expensive ASICs can mine more efficiently than smaller/cheaper ones. Same with GPUs. Someone with more initial capital can get ahead faster in PoW, while in PoS earns at a same rate as everyone else.
Analogy: This would be equivalent to the interest rate you get in your savings account being dependent on how much money you have. In PoW, the richer you are the higher interest rate you get from your bank, in PoS everyone gets the same.
- Geographic factors: Cheap access to energy has a large impact on PoW as it dictates most of your OpEx. In PoS this is largely irrelevant (PoS is 99.95% more energy efficient than PoW). Taxation/regulation would need its own analysis but I imagine is equally spread across both alternatives. Supply chain is again in favor of PoS as it can run on general-purpose HW, while ASICs are heavily centralized around a single manufacturer.
Analogy: This would be equivalent to different geographic locations resulting in different conditions for maintaining open your bank account or taxing your accrued interest.
However both can be overcome by pooling money or hash power...but then again that doesn't lead to more decentralization.
While pooling hashpower doesn't solve the economies of scale mentioned above. If your hashrate per kW is bad you will get a very poor yield on your investment. There is also a commission to pay to the pool operator. Pooling in PoW serves only to receive a more consistent revenue stream.
If the pool operators don't actually own the mining hardware then their power is limited to what the participants in the pool, who do own the hardware, allow them to do. If as an individual miner you don't like what your pool operator is doing you can always switch to another pool and take your delegated influence with you. Most proposals require supporting votes in many blocks before they take effect, so you have time to choose a more representative operator.
Where is censorship resistance when the on ramps and stakers become centralized?
That's to me similar, if not worse than with PoW.
They're distributed, not decentralized. And this distinction, and the refusal to acknowledge it is what put me off crypto entirely.
Has a nice sound. Good job team.
I wrote it off years ago. Is it doing anything with real utility yet?
As opposed to "a bunch of dodgy rich people"
With proof of work, the same effect exists, thought it involves a loop where hashrate is exchanged for money, which is converted into more efficient hashrate at a TSMC fab.
An actor that openly attacks the network will quickly be blacklisted in either system, but when you control a majority of the money there are other ways to influence the system that don't involve breaking a formal rule.
Disclaimer: I don't have the faintest clue what I'm talking about. I only have passing familiarity with cryptocurrencies, and I've read one or two of their whitepapers.
More ETH/= more power. In my understanding, an attacker would need to control half of all staked ETH to stage a 51% attack, which would require many billions of dollars. But actually exercising this control by attacking the network would undermine the network’s security/utility, potentially sending ETH to zero and obliterating the wealth of the attacker.
This is, supposedly, a strength of PoS: the more ETH you have, the less incentive you have to attack/destroy the system.
Trying to cheat through the protocol is uninteresting. You don't destroy the system by breaking L1 rules, any such attack if successful would just get rolled back by hardfork (and nevermind the 'staked money is lost if cheating is detected' system, no one would willingly trigger it).
More ETH is automatically equal to more power, because that's exactly what money is defined to be. We trade it as power.
In such a situation, the price effect of the negative news from the attack would be partially canceled out by the jarring reduction in ETH supply.
- My money is secured by a private key and nobody can touch it ever unless they get my private key. I can simply be cautious about my private key and I know there is no other way anyone can ever get my money
- I can fill out a text box with the amount I want to send and press send
- I don't have to deal with some harebrained naming system. I can literally just send to someone's public key. This is literally how cryptography is inteded to work. It's up to _me_ how I obtain his public key.
- Monero etc exists (admittedly, not sure if it still works when someone has all the mining/stake power)
- Some guy is getting rich because he owns more miners or stake
- My password is 8 digits (this is not even an exaggeration, some of the biggest banks in my country do this)
- The bank might give all my money away if someone knows where I ate KFC last
- My money may be stolen for other reasons, because the bank wont tell me what data I need to keep private to avoid having someone transact as me
- The ID they use for authentication was also given to some 30 other e-commerce platforms and cannot be considered secure
- There is almost certainly a way to get into my account without the password
- I have to be paranoid and try to keep random trivia private such as how much I payed on an electricity bill
- I have to type codes from insecure SMS on a phone that I do not want in the first place, because the bank and all e-commerce platforms considers me an idiot and does not even give me an option to turn that shit off
- If I transfer from one country to another, my transaction may be blocked
- If I transfer some certain amount, my transfer may be blocked
- If I use a certain IP address, my transfer may be blocked
- If I transact at a certain time, my transfer may be blocked
- If I update Firefox too fast or too slow, my transfer may be blocked
- If I click buttons to fast or too slow, my transfer may be blocked
- Someone might hack my computer because it has a Big 4 web browser and the giant stack of software required to support that, instead of a hypothetical OS where people care about security and don't use C, at the cost of some microseconds.
- If I change my email address (which I don't want associated to banking in the first place) for some reason, my transfer may be blocked
- When I call the bank, I have to be polite and try to avoid saying anything suspicious (in their own mind) that will make them hold my money yet longer. I will have to supply them will all kinds of nonsense like where I ate KFC last, more ID, and a "phone password"
- My transactions may be permanently blocked and there's nothing I can do about it because the bank reps just talk to a black box "risk analysis" machine and at some point there's no way to override its decisions
- Money I receive can be "reversed" for all kinds of bogus, emotional, and/or "risk analysis" reasons
- The bank can just take my money and claim I was hacked. They have N pieces of my photo ID, address, phone number, email, and much more, and so they can choose a few people they don't like and do this to only them
- I have to interact with my bank through web pages that crash every 3 button clicks, and PDF files that may or may not render correctly (or snail mail, which is equally full of bad security)
- Some guy is getting rich because he's positioned a certain way with the bank
Bitcoin is secured by hashpower, which is produced by physical capital outside the network. Nobody needs to ask for permission to start hashing and trade kilowatts for sats.
PoS networks are secured by on-chain assets. This means you can't "mine" it without first buying tokens from someone who already owns them. You need permission from an existing player in order to start participating.
Another aspect of this is 51% attacks are recoverable for PoW, but are a permanent takeover condition for PoS networks. If a single entity ever accumulates more than half the tokens on a PoS network, they are unassailable.
Current market cap of ETH is ~$324B, thus getting 50.1% of ETH would require $162.3B in capital. However, as soon as you start acquiring ETH the price will increase, especially at those large volumes.
It would be insanely hard to come up with enough resources to buy enough ETH in a POS world to take over the network. Never mind the fact that as soon as it's become evident you've taken over the network the value of the network is essentially worthless and you've just destroyed billions of dollars worth of capital in the process.
It's kinda like taking over a condo building on a much larger scale: the people you buy out first can charge a premium; by the end, you set the terms.
The price goes up, you've just made it more expensive for yourself to take over the network.
If you were to attempt to take over you'd be better to do so in silence. However, it would be hard to hide that kind of control and wealth when every information on the network is publicly available.
If you're intentionally trying to take things down, sellers have a huge incentive to not be left in the 49% who hold something that's now lost its value - as you say, "as it's become evident you've taken over the network the value of the network is essentially worthless." I think you could get the value to go to worthless well before actually hitting 51% on intent alone, if you're a big enough power.
The Ethereum everyone talks about today is the fork, due to the Ethereum Foundation which owns the trademark leading the fork.
The Ethereum blockchain with the unaltered history is called Ethereum Classic
https://en.wikipedia.org/wiki/Ethereum_Classic#The_DAO_bailo...
Ethereum devs were unable to create a legitimate transaction reverting the DAO funds because they do not have access to the hackers' private key. The reversion was done with a "surgical state change" hardcoded into the client itself.
Anyone can create new capital independently.
Nobody can create new tokens outside of the chain rules.
This means any newcomer can build up power in a PoW network, but "old money" is privileged in a PoS network.
Of course, this does omit some real-life considerations like people needing money for other reasons (to pay taxes, when they die, to buy a house, etc) but the basic principle stands: any initial whale in a PoS coin will basically never be dislodged if they play the optimal strategy.
You've destroyed other people's "money" at the expense of your own.
If they can acquire a majority of only the active, staking ETH, then other big ETH holders can start chipping in stake to tip the scales back.
You can switch the protocol once. Making ASICs useless. But you can't do it twice.
> but are a permanent takeover condition for PoS networks.
This is false in both theory and practice. It is true that PoS does not offer in-protocol solution for the problem. But there is a historical precedent of people forking away money of Justin Sun in Steem project, creating Hive. Community has followed the fork, basically destroying Justin's Sun funds.
It is this aspect that I view the current Ethereum hard fork as one of the most important test the crypto scene had in a while - it's more of a political test than a technical one. I'm assuming that there will be quite some friction between the miners and the owners - and I'm interested in how it would turn out. Those two groups are dependent of each other for their existence, and the rift between them would potentially be the demise of the project. Will the project succeed in establishing a governance structure that would address both the needs and desires of both groups? Or will the project go into tyranny with one group dominating over the other (which would eventually lead to everyone's downfall)? In other words, this will be more of a test of governance than about technology. I don't have high hopes for the miners though, since there's just too much investor pressure from all the crypto craze that hasn't really been stopped since the coronavirus, and the miners doesn't seem to have a strong enough coordinated willpower to land an effective strike.
This is an incorrect explanation of what a permissioned blockchain is. A permissioned blockchain is one in which the ability to add blocks is limited to a certain collection of entities whose public keys are hard coded into the blockchain's consensus mechanism. We don't say that needing to buy tokens constitutes needing "permission" any more than you need permission from a chip manufacturer to buy ASICs to mine a PoW cryptocurrency.
It is possible to acquire an unassailable monopoly over PoS tokens. You might be able to buy scraps from random traders, but will the >51% whale be willing to sell their core holdings when they can simply live off their staking yield?
>A permissioned blockchain is one in which the ability to add blocks is limited to a certain collection of entities
I agree. Ripple is an example of a chain which explicitly follows that model. PoS regresses to something like this because a 51% majority attacker can control consensus.
Is ASIC hardware made of silicon? In that case, an entity who owns the entire supply of silicon has a "permanent, unassailable monopoly over ASIC hardware in general".
Silicon is the second most abundant element in the Earth's crust, after oxygen: and only because there are two oxygens in silicon dioxide.
If someone corners the market on silicon, Bitcoin dominance is the least of our problems.
But physical capital is also finite.
Followed through to its ultimate conclusion, a set of trusted entities should simply run some kind of performant database.
Only in the most pedantic sense of 'permission'. There will always be thousands of disparate parties, across numerous markets, with offers to sell their ETH. It will never be harder to procure ETH than to procure hash-generation hardware.
This is not true. PoS has many design flavours and the one Ethereum is planning on implementing includes random selection of validators and the amount staked has no influence on the inclusion or the vote "weight".
Also with PoS an attacker will always incur economic losses similar to having your mining rig burning down if you were to try to foce a bad block through. In PoW networks attackers can keep on mixing attacks with producing normal blocks and remain profitable
If an actor pulled off a 51% attack on Ethereum I'd be surprised if there wasn't an effort to just hard fork them out of their resources.
Without losing their stake to slashing penalties, though, the worst kind of attack 66% (not 51% iirc) can do anyways is a censorship or denial of service attack. Which is bad, but at least they can't revert transactions or double-spend like in a PoW model.
While it’s true that you can’t buy Bitcoin (for example) unless someone else is selling, most people aren’t concerned about market liquidity for buyers due to whales being unwilling to sell. The permission to buy doesn’t seem hard to get?
Also, for the most part, people are happy when the price goes up, which is what happens when there are more buyers than sellers.
I guess in theory, money drops could distribute ownership more widely and that would be more equitable, but this sort of inequality (some people have a lot more Bitcoin than others) isn’t normally considered too much of a problem.
But if you’re going to take distributed governance seriously, neither proof-of-work nor proof-of-stake give ordinary people much of a say in how things go. In this way it’s similar to the stock market, where we’re told our votes are meaningful but in practice they aren’t unless you have a huge amount of shares. Participating in governance is usually an illusion and it’s not normally why you invest, unless you’re a corporate raider or something.
Similarly for mining. It’s done to make money.
As for governance, with Bitcoin everyone is equally powerless to dictate how things should go. If you appreciate the fixed ruleset, you can choose to participate.
Ethereum is far more nebulous, being piloted by a foundation which hardforks the protocol at will.
If I had to, I could plug an ASIC into the wall and 'trade' energy value for bitcoin directly with the network.
Otherwise this is just a nonissue.
Source : Mined Monero on an R9 290X until a few months ago.
[1] https://github.com/tevador/RandomX/blob/master/doc/design.md
Since then the PoW is RandomX which heavily favors CPUs. I'm 99% sure there is no GPU in existence that can profitably mine Monero since then, assuming your electricity isn't free.
From sea to shining sea, the new world's plundered resources eventually turned into Bitcoin.
And these wages grew at record rates all through the latter decades of the 1800s, in the midst of the largest influx of penniless workers in US history (causing the foreign born portion of the US population to reach 15% by 1890).
That wages grew as fast as they did, with such a massive increase in the supply side of the supply and demand equation for labor, is testament to the opportunities that the principal nation of the New World was generating.
What's worth refuting in gp's post is the notion that humanity is "plundering" nature. Humanity is nature, that's what there's no escaping, unless you believe in the supernature.
I really don't think PoS or PoW are going to change what you guys are talking about.
Also, staking redundancy/failover is hard to do. You never want to have two nodes validating with the same keys, the punishment in case there are two validators with the same keys at the same time are very harsh. While not being up, is barely above the cost of opportunity of the reward that you could have gotten.
Roughly speaking:
Your node goes down: roughly cost of opportunity (you don't get what you could have gotten if online)
You and your neighbors, city, state going down: Roughly above of cost of opportunity
Centralized service validating for a large percentage of the network going down: Above cost of opportunity penalties.
Double-validation: Risk total loss of capital.
What is the impact of shorting on PoS - what happens when I borrow enough ETH to win blocks, deliberately mis-verify TXs, and screw up consensus.
I know Ethereum has planned recovery for situations like this, but PoS introduces risks that will never be as present in PoW bc the latter has built-in latency to how easy it is to aggregate resources which increase market power and centralize around certain miners (ie buy asics and build a data center takes time, so you just have to watch mining pools for liquid malicious hash rates for equivalent risks in PoW).
Just as in PoW miners make blocks in proportion to their hashpower, PoS stakers win blocks in proportion to their stake
> What is the impact of shorting on PoS - what happens when I borrow enough ETH to win blocks, deliberately mis-verify TXs, and screw up consensus.
Well, you can't "mis-verify TXs", everyone can check your work to see that all of the transactions you put in your block verify. If you reached 1/3 of the total stake on the network, you would be able to screw up consensus and make conflicting blocks both appear to be finalized, just as a 51% attack on a PoW currency can revert a block that it treated as final by client software.
The ETH2 block explorer https://beaconscan.com/ tells me that there is about 6.5 million ether staked, which would be worth about 16 Billion USD, so you would need to borrow around 5 billion USD in order to make this attack work.
If you were about to find someone to sell you $5B in ETH at spot price. In reality you would need much more than this.
Using the below language to discuss a threat model vs. implications of my tinfoil hat existing or not...
5B USD for an attack isn't a major barrier though to an actor looking to attack ETH, though. Are you implying that it is?
For reference, some of the crypto-lenders have around 15B USD-equiv under deposit, and they're fairly small stakes wrt capitalization of possible attackers of ETH.
The issue I point out and don't hear discussion on except stuff like you've posted is that it's significantly easier to acquire 5B USD to DoS a PoS network, than it is to acquire enough hash rate and lag time due to physical data center constraints to do something equivalent POW. PoS might be secure-enough, but it's not just a clean, environmentally better but security equivalent swap out for PoW.
The assumptions seem to be that the attacker would want to do it to take over and their coins will be deleted when caught, that there are protocols in place to recover consensus if this happens based on community involvement, and lastly that an acquisition of that much ETH would be noticed before an attack. Take these together, and security risks of PoS are controlled.
But that's fairly narrow minded wrt adequate risk controls and actually considering the threat model
- Cost to do it: 5B to DoS ETH into a consensus-rebuild isn't a high barrier to entry.
- Goals of an attack: There are plenty of attackers that would be happy just DoS'ing it vs. winning consensus on their chain version for DSs or what have you.
- Has this been done: there's more than enough precedent out there of acquiring 5B covertly, especially with a derivatives market in place. Easy example is across multiple crypto lenders aggregate enough ETH derivatives that can be converted to the underlying, convert in unison, and 5B of ETH suddenly lands. This is already sort of how it's done in normal corporate finance.
- Community involvement in a recovery: I'm really skeptical of the community-driven recovery mechanism. Tezos/EOS and similar already had a lot of trouble making this approach to consensus fixes work because of basic voter participation challenges. It sounds more like a few key nodes will drive a fix like in the DAO, and then this starts to look fairly centralized. Not a bad thing as it will fix chain problems, but again not a clean 1:1 swap for PoW security guarantees.
Final point - "well there must be someone thinking of the risk modeling here in PoS and accounting for it, Ethereum has smart people working on it" The reality is that protocol-level security research beyond the 51% consensus research and strong cryptography is really, really lightly done. This was a main topic of MIT Bitcoin Expo's Keynote this year, actually. PoW took 30 years of research and some luck during BTC's early days to identify that it could actually secure a chain. PoS does not have that history yet.
The edit - when I ref 5B USD, I'm implying the ability to convert it into equiv ETH. This is still doable as the market isn't that illiquid, and if you spread out the balance over a N-nodes until you aggregate for the attack, attributing that to a single attacker is very hard to do.
Well 5B USD may not be an impossible sum for some corporations and nations, but for some actors this is a barrier, yes.
I'm not necessarily trying to say such an attack is out of the question, I'm just trying to elucidate the question of the difference between PoS security and PoW security. I'm not convinced that your argument about the possibility of a covert accumulation of staking power does anything to distinguish PoS from PoW. You could just as easily invest that 5 Billion to build a chip fabrication plant, use that plant to covertly build ASICs, and surprise the Bitcoin network with a 51% attack.
And if you did that then all your stake would be automatically destroyed. It's as if a 51% attack on PoW caused your mining rig to burn down.
Ethereum already "slashes" the staked ETHs of those who try to game the system (Ethereum already has one chain on PoS): the coins of stakes who try to cheat the system are not even confiscated, they're destroyed (making every other holder a little bit richer).
I don't know if this shall work or not, but that's their plan to keep bad actors from trying to attack the system.
Which means, whether you can stake is very dependent on your personal situation - especially geography - much like whether you can profitably mine.
Of course staking is still better than mining for many reasons. But it's a somewhat rich person's game.
And you can get eth with gasless minting of nfts. Draw a picture and sell it. Don’t have to spend any money.
I much prefer this to burning up electricity which basically hands the network to energy suppliers and asic manufacturers.
For this reason you cannot build a trust-less distributed network with proof of stake alone: you'll need some kind of proof of waste to bootstrap it.
But you do need ETH in the first place, and the more the better. This seems like it still disincentivizes smaller players.
This is not a rant for or against Bitcoin or Etherium. It's more to point out the persuasive and idealistic rhetoric of crypto gets confused with what may happen in the real world as people work on use cases.
All these points for/against PoS/PoW are technicalities at this point given that "decentralization" is a spectrum.