Proof-of-Stake and Stablecoins: A Blockchain Centralization Dilemma
lynalden.com
lynalden.com
For a consumer to participate in PoW based on current miners it seems like they need to buy perpetually out-of-stock specialized ASICs for a sunk cost of $10-15k with the expectation that they'll break even in about a year and probably need to refresh in 3. The hardware management aspect as well as the variable cost of electricity seems to incentivize centralization of mining significantly.
Being able to standup a staking node with commodity hardware seems far more accessible.
But electricity costs can be very different in different parts of the world. This leads to miners in areas with high electricity costs shutting down, and mining operations opening up in low electrical cost areas. This can lead to a majority of the network falling under one political jurisdiction. PoS avoids this problem entirely.
Proof of stake entrenches a group of rent seekers in perpetuity, without the need to do anything external, or anything whatsoever. The risk of mining is quite high as we've seen the past few years and there is no singular entity that has dominated Bitcoin mining for more than 3-4 years. Furthermore even when Bitcoin was dominated by Bitmain and a few other miners predominantly in Asia, they were unable to use their mining power to influence Bitcoin.
So the argument comes down to Bitcoin depending on external factors that are quite risky and requires constant upkeep and innovation in order to maintain ones position in the ecosystem, versus proof of stake where absolutely nothing is needed to maintain one's position.
It's not as though increased mining efficiency provides some net good for the Bitcoin blockchain, e.g. increased transaction throughput. It just provides a profitable edge for the miner. You'd just expect difficulty to increase, not energy usage to decrease. I don't think there's any particular reason to desire this sort of cross-miner competition that produces negligible societal gain.
https://en.wikipedia.org/wiki/Rent-seeking
E.g.: "The classic example of rent-seeking, according to Robert Shiller, is that of a property owner who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee to lower the chain. There is nothing productive about the chain or the collector. The owner has made no improvements to the river and is not adding value in any way, directly or indirectly, except for himself. All he is doing is finding a way to make money from something that used to be free."
It's only for the particular school of Georgism (which holds that all undeveloped land value should be rightfully owned by citizens equally) from which the phrase originates that the transaction of "housing rent" is viewed as unjust enrichment (in that the majority of the cost is assumed to merely cover rights to the undeveloped land). Even through this economic lens it's difficult to make the "rent" definitions align, as the notion that a property might "go up for sale" is already a violation of the principle - the landlord is still providing a service with investment capital, they're just forced to work within the confines of the system for private land ownership.
Ahhhh, that's a light bulb for me.
PoS is a step backwards in security, but perhaps not a meaningful one. Bitcoin has proved itself to a rock, or possibly a mountain range when only a rock is needed.
But yes, Bitcoin's mining fees are very carefully structured to be a near perfect market. Not so great for the miners - but perfect for the currency and it's users. Now you mention it, or Ethereum PoS looks like an excellent mechanism for the dominant Ethereum holders (which includes the founders - a point I'm sure hasn't escaped them), to entrench their position. I think we can safely predict things will take their natural course over time - and they will start charging what they think the market can bear.
But in any case, Ethereum is going to try PoS, so we'll see what happens.
I see multiple factors that hamper decentralization:
- 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 decentralized pooling solutions (e.g., Rocketpool), 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.
This, in essence, is why any further adoption of PoW chains is deeply incompatible with climate change mitigation. I'm happy to see crypto mature into some kind of open source / open protocol financial system but it needs to happen strictly on proof-of-stake chains (whatever the challenges to decentralization).
Moreover, to the proponents of PoW, it is not a flaw to be removed, but a necessary foundation that makes the protocol incorruptible and eternally open and permissionless for anyone to join as first class citizens, even late adopters. This stands in stark contrast to PoS which gives an absurd level of power and protocol control to early adopters that potentially can't ever be diluted, and may even increase since PoS rewards holders of coin with even more coin.
1) A system that turns energy usage into $ will always gravitate towards the cheapest energy source (fossil fuels). Maybe we'll eventually figure out cold fusion, but for the next few decades it's pretty important to promote carbon neutral energy production even if it's more expensive while simultaneously cutting out gratuitous industrial scale waste like PoW mining.
2) "makes the protocol incorruptible and eternally open and permissionless for anyone to join as first class citizens, even late adopters". Ah yes, let me just fire up my warehouse full of ASICs connected to a dedicated power plant. Any old Joe could do it.
Renewables are often cheaper - it depends.
https://www.theguardian.com/environment/2021/jun/23/most-new...
1) Bitcoin mining is increasingly migrating to hydro and geothermal, because fossil fuels are too expensive in comparison. Presumably, nuclear will come eventually.
2) See what I did there in my first sentence? We should have an intellectually hygenic discussion; there is no valid place for the kind of rhetoric you're employing.
There are arguments against these, but yours is a poor one.
Developed countries are already making okish strides on decarbonizing, but how can we in the first world effectively decree that the developing world must halt or slow progress towards the lifestyles that we enjoy. That reeks of a new kind of colonialism, and simply won't go over well without the threat of global violence.
The only way we'll actually make strides on decarbonization is with some kind of global carbon tax. I'm not going to pretend I know how we accomplish that, but if we can't, we're not going to mitigate climate change in any reasonable way.
The majority of these harms are in heavy industry, manufacturing, logistics, etc. I'd estimate only 1% of this problem can be attributed to cryptocurrency.
If crypto was somehow globally banned, the problem would not be significantly diminished. If bitcoin eventually becomes responsible for 10%+ of dirty energy, only then would this argument be compelling to me.
And you seem to be ignoring my point, that until we internalize the costs of burning fossil fuels, there will always be someone willing to burn it, even if it's not bitcoin miners.
If someone wants anarchism they should simplify and use gold or some other easier to carry and exchange.
In a crypto anarchist’s dream world, the employee’s income claimable token could be resold, purchased by a loan shark, and the loan shark could provide another permission-less contract where anybody can upload a picture of the employer’s knees being broken, likely verified on chain by some other pain oracle.
The countervailing factors are, the poor are mostly ignored (except for kidnappings of large groups of children) while the rich can afford private security at an equilibrium price point where betrayal is not rational. Although crime rates are high, most do not participate because people are good for the most part. The major drags are scams, unpaid workers, phone theft (a phone is more likely to be stolen than a laptop), equipment sabotage (from wiring to rail tracks), political campaign related violence and most especially, theft, corruption and embezzlement by government officials.
In an environment of rampant corruption, minimizing the surface area exposed to trust is a rational preference. It might even be helpful in exiting a high corruption steady state.
Neither are great, but various crypto scams have been more common than even bank fraud, plus they use more energy.
Five? Ten?
It's possible that the US dollar doesn't collapse at all in the next 50 years... and that would be great... but it's also possible that at some point in the next 50 years the US dollar ends up being devalued significantly in which case it isn't such a horrible idea to take some of your cash and store it in a globally accessible cryptocurrency in addition to other assets such as gold.
You're saying that because world currencies collapse (your claim is the majority of them have within the past 100 years, which I don't have the data on, but let's just assume for the sake of argument that you're right), bitcoin is needed.
But bitcoin collapses not just every 30-100 years, it collapses every 0.5-5 years. [1]
How is that in any way better? Why are we spending all this energy on this?
[1] https://www.yahoo.com/now/7-biggest-bitcoin-crashes-history-...
When someone says that a fiat currency collapsed, it means the value went to zero forever. Bitcoin hit a new all-time high price in USD just recently. Not the same usage of the word collapse.
It specifically does not require permanence for any of the definitions, there's even an entire subsection on the varying degrees of persistence of various currency collapses.
Interestingly, from a first glance, it would also appear that most of the bitcoin collapses linked above fit the definitions in the paper, or iow, are just that, collapses.
Sometimes it's okay to admit when you're wrong.
“Bitcoin's Energy Usage Isn't a Problem. Here's Why.”
https://www.lynalden.com/bitcoin-energy/
Also, fraud is absolutely everywhere. Everywhere.
Yes. You can.
Let's actually generalize it to anything with an outsized carbon footprint (e.g. commuter flights, car dependent housing development, &c).
We will almost certainly continue doing that stuff but it's incompatible with any vaguely desirable ecological outcome. PoW crypto is special in that it is both highly optional (it's not essential to the lifestyles of 99.999% of people) and has easy substitutes.
Crypto mining can't be curbed by carbon taxes in any energy market like normal electrical consumption.
It can be done. We banned CFCs after all.
The taxes on PoW specifically interfacing with the financial system is a weak form of banning it and is definitely something that would work though, but what the gp seems to be arguing strongly against. They are asking why the energy price can't be updated to encompass the negative externalities instead of indirectly taxing it through the PoW's blockchain when it interfaces with the financial system.
Carbon taxes on energy used to mine bitcoin will cut into profitability, leading to some proportion of the least-efficient miners turning off because they are no longer profitable.
How to coordinate a global carbon tax seems like a much bigger problem than cryptocurrency. At 0.5% of global energy use, even if crypto mining was magically eliminated in an instant, 99.5% of the problem would still remain.
Also, feels weird to try to address this problem on the demand side instead of the supply side (which has much more direct influence). Machine Learning training is power intensive and location-insensitive, but it feels odd to worry about 'how to enforce carbon taxes on ML training'. "Which uses of energy are economically profitable" seems tangential to "how much carbon is produced by energy generation".
I’d like to hear what other economic activities you consider “highly optional” and whether they are more or less deserving of economic resources than Bitcoin.
The immediate carbon impact of proof-of-work should be solved by banning proof-of-work. What is the problem any of this is solving?
It seems to me like your defense of proof-of-work is "it needs to be this way to work properly and it's not that big a deal", but why do we even need it to work? If it has a clear carbon cost and no perceivable benefit, then it seems obvious to me we should get rid of it.
I see no “perceivable” benefit in lots of things that other people choose to spend their time and money on. But at least I have the decency not to say it out loud.
Does that mean everyone who plays video games after work is literally satan for consuming energy for mere entertainment?
Life itself consumes energy; does this mean the universe would be better off without us in it?
This is obviously a nihilistic viewpoint once you follow it to it's natural conclusion.
I expect the future will have a combination of both PoW and PoS due to fundamental trade-offs. So I got news for everyone. Proof-of-work exists and isn't going anywhere. You can't just yell at the clouds wishing we could make it illegal for "environmental reasons". PoW is not "incompatible with climate change mitigation", this is obviously a straw-man. There's plenty of energy to go around, and we have to solve the climate+energy crises either way. Not to mention Co2 emissions alone is just one small part of the overall climate concern.
I'm more interested in individuals and organizations willing to actually solve technical problems related to energy and climate, and choose to ignore those just yelling at politicians to solve it for them.
If that replaces them and the three friends they are playing with from each driving in their own car to the bowling alley 25 minutes away then it's a net carbon savings. It's all about the alternatives, and in the case of cryptocurrencies, a lot of people think there are comparable, much more energy efficient alternatives for everything you use crypto for legally. There really is no ridiculous conclusion here, it's about the alternatives.
Neither is PoW and PoS, but it's still a question whether those differences are meaningful and worth the tradeoff. The argument is not absurd, there are real costs to the PoW approach worth considering.
The PoW powered by solar is different but it's also a mythical beast. By design there would be no way to legislate the kind of energy the mining part uses because it's opaque to the users of the network. The only thing reasonably open to legislation by a country are the interfaces of the network with the countries financial system and by then it is impossible to determine the providence of the energy it used. It's also impractical to make enough energy where coal or other fossil fuels aren't economical to mine blocks in a popular PoW scheme.
No. The only alternative that is even remotely similar to Bitcoin is gold, and gold mining is horrendous to the environment. Proof of stake coins are not Bitcoin, they don’t provide the same value proposition, and if you don’t understand why then I’d encourage you to do some more reading (including the entirety of the article linked in this post).
Sure, but it's especially important to say here because proof-of-work cryptocurrencies are novel, popular, and consume orders of magnitude more electricity per transaction than more common transaction processing systems.
Ex. How much of the energy budget of the US military should be included in the cost of a dollar denominated transaction?
And if we were charging for underlying infrastructure costs, then Bitcoin would have to put in its share. Unlike paper/specie currencies, Bitcoin is entirely dependent on a functioning global internet. There are an awful lot of long-tail scenarios under which Bitcoin becomes effectively useless and therefore valueless.
This is a very weak straw man. The majority of people on the planet interact with the dollar economy, either directly or indirectly, because of its extreme dominance. Of course a ~0.3% reduction in users isn't going to change much.
Dollar hegemony is fairly binary: either it's the dominant world currency or it isn't. If hegemony falls, the US military will have to reduce in size, because it can no longer be funded by being the gatekeeper of the global economy.
It seems you don't see the value of POW cryptocurrencies at all. The attitude that "bitcoin is worthless, so any energy spent on it is wasteful" has been parroted a lot on HN recently, but... scoreboard: the market disagrees. I wish more bitcoin skeptics kept some intellectual curiosity around it rather than just writing it off as "I don't get it: its worthless" - there are reasons people are paying tens of thousands of dollars for a bitcoin, even if you don't understand them.
I think these attitudes are indicative of cognitive dissonance in individuals who dismissed Bitcoin a long time ago and don't want to recognize their own regret for discounting it: if they didn't dismiss it their net worth would probably be higher today.
Markets also value Ponzi schemes highly. So what? Markets can be a useful guide to value in certain circumstances, but it's correlative, not probative.
I've had plenty of intellectual curiosity around Bitcoin, blockchains, etc. For a while I was hoping something good would come out of it. But it's been 10 years and there's been almost no economically positive use demonstrated. It's great for certain kinds of light financial crime (ransomware, money laundering, etc) and it's great for creating the sort of unregulated markets in which scammers, fraudsters, and other economic parasites thrive.
I'm personally very happy never to have put a nickel into cryptocurrencies. Could I have made a bunch of money? Maybe! Would have it been through creating value? No, not at all. It's a "greater fool" game, and I don't play those. I haven't since I quit working for financial traders in the 1990s, as I don't think it's moral to get paid when no value is created.
> The energy problem isn't unique to Bitcoin.
The unique problem with Bitcoin and PoW in general is that its energy usage is inversely proportional to the cost of energy. If the total value of Bitcoins mined every day is $X, collectively Bitcoin miners will use just a little less than $X of power every day.
That means that any time we do improve our energy infrastructure, by increasing supply with more renewable sources or reducing demand via efficiency improvements elsewhere (all of which reduce energy prices) Bitcoin mining becomes much more profitable, miners expand and new miners appear, and PoW's energy usage goes up accordingly to use as much power as they can possibly afford (up to $X).
This isn't true for anything else - there's no other industry that so directly turns energy into money without limits. While there is a relationship to other energy usage, if energy drops to 1/100th of its current price, people don't start heating their houses 100x more, they don't start gaming on 100x more power-hungry computers, and they don't start taking 100x more flights than they do today, because in each case, there are significant other limits and marginal costs involved.
PoW meanwhile will absolutely increase its power usage by 100x, as fast as the network possibly can. This is why PoW's energy usage is a unique problem.
Aluminum refining maybe, but even then you are going to run out of ore to turn into aluminum. This really highlights how novel the mining economics are.
Using more cheaper energy to hit a higher difficulty to protect the same network isn't a societal gain in the same way.
I.e. aluminum still follows the normal supply-demand curve even if it is highly sensitive to energy prices
They both suffer from the negative energy externalities, but you get something more with higher aluminum production. You get more aluminum.
More generally, the Rebound effect suggests other expansions will consume a sizeable portion of efficiency gains (or possibly exceed it). Video gamers will want higher res VR devices, they'll want richer worlds with better physics, animation, AI units and high fps high resolution graphics. AI software is absolutely guaranteed to use up any 100x gain in efficiency and more will be demanded of computers.
A backfire effect is predicted as possible if new capabilities once discarded as infeasible open up (ala aluminum smelting, constant use of AC) and when new economic activity generated by gains in efficiency results in a larger number of wealthier participants. Such effects from efficiency gains are fine so long as they're focused on energy and not say, polluting fuel use efficiency.
Buckminster Fuller proposed ephemeralization as the manner in which prosperity could increase given growing population and finite resources. This takes place because as material use decreases; information, computation and energy use intensity increase as more activity is displaced into them.
The author's opinion on this topic is that energy arguments are basically bunk, but she doesn't mention the scaling you do. I'm unequipped to judge who's right.
Every economic activity uses energy (electricity, or combustion) in one form or another. The argument you’re really making is that the net increase in energy usage due to Bitcoin’s existence—and the resultant carbon impact, however you propose to measure it—is not worth the benefit provided by the Bitcoin network. But if you’re going to judge Bitcoin by its carbon footprint, you might want to judge all other economic activities by the same standard to avoid accusations of hypocrisy.
This is the thing that few authors understand about Ethereum. The main use case is creating new tokens and trading them, and this was clear from the beginning when Ethereum was created as an alternative way to do Bitcoin colored coins. This is not entirely useless. Speculation is a "use" after all.
But as the article lays out, such uses are likely to be dwarfed by uses around censorship-resistant base money. Especially with the ways in which the worlds major government-backed currencies have been weaponized.
> Ultimately, it partially depends on what governments want. Smart contract platforms with centralized attack surfaces can only exist at the pleasure of the government, so it comes down to how much regulatory crackdown they get vs how much regulatory approval they get.
Another point that authors seem to really not get. It's all memes and good times until governments discover there's a casino operating out back that's not paying tribute. We haven't so far seen the effect of a western government clamping down hard on this, but if it comes, it will come to "stable" coins first. And as the author notes, the probable success of such clamp downs positively correlates with the degree of centralization.
Many seem to have forgotten Liberty Reserve.
https://en.wikipedia.org/wiki/Liberty_Reserve
That precedent should give the oligarchs running a proof of stake chain such as Solana, or eventually Ethereum, reason for caution.
Proof of stake:
"Proof-of-work is fundamentally very simple, is easy to analyze, is easy to implement and deploy, and proof-of-stake has a lot of moving parts. You can code up a proof-of-work algorithm in a hundred lines [of code] or so. Our current (Ethereum) clients are a hundred thousand lines or so for proof-of-stake."
What could possibly go wrong? Remember the DAO hack. The author also points out that proof of stake makes it much easier to change the rules for a token. He considers proof of stake coins to be a different asset class because of that.
NFTs:
A key problem is that these types of NFT sets are pretty easy to manipulate ...
The first scam is to bid up asset prices and trick buyers into thinking those prices are real and to buy into it. It’s market manipulation, in other words. For example, a user can set up five different Ethereum addresses, and start trading around an NFT to themselves at increasingly higher prices. Outside observers don’t know that all these wallets belong to the same person and that this is literally just insider trading. This is only possible with a non-fungible asset; you can’t manipulate the price of an individual bitcoin or an individual ether on your own, you can only manipulate unique objects like for example CryptoPunk #9998. Then, with prices (seemingly) so high, some people want to get in on the momentum and buy the NFT, so the person who was trading among their own wallets finally sells the asset at a higher price to that unsuspecting newcomer. When that newcomer tries to sell the asset, he or she is unable to find other buyers who actually want to pay that price. They don’t realize that a lot of the liquidity and price-escalating transactions were actually just manipulation.
Yes. We know now that the famous Beeple sale was faked like that. Go over to OpenSea and look at some of the high-priced items. Then look at the bid prices on them. As I pointed out previously, this is exactly like Beanie Babies on eBay - asking US$5000, actual sales around US$50. The result is a stalled market, rather than a crash - lots of asks, few bids, orders of magnitude bid-asked spreads, few transactions.
Stablecoins:
"any smart contract blockchain that relies heavily on DeFi for its use case, can have the outcome of its hard forks significantly determined by centralized stablecoin custodians. These custodians can nullify the value of all stablecoins on whichever side of the fork they don’t view as the correct one, which severely reduces the survivability of that side of the blockchain by rendering its DeFi mostly insolvent."
Custodians. Like Tether/Binance. Those guys.
Well, not quite. Prysm[1] has a pretty harrowing codebase, but it’s not huge. You can grep all of the ick in a handful of minutes. :)
[1] https://github.com/prysmaticlabs/prysm
edit: I stand corrected! I guess it's been a while since I took a peep. Don't say I didn't warn ya!
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There is an obvious asymmetry here. You can code up a toy PoS implementation in less than the hundred thousand lines of code in the actual production ethereum clients. The production PoW implementations are also not "a hundred lines or so".
And it's not that this point is wrong, PoS is more complex than PoW, but the hyperbolic comparison is not necessary to demonstrate that point. It sets off my "doth protest too much" alarm.
1. Saying PoS is bad because it has more economy of scale than PoW is contrary to what we see in reality. People need to verify their first-principles thinking.
2. The "you can't run a PoS node" stuff is not universally true and seems like an unacknowledged PoW bias.
3. Talking about what happens after hard forks is like worrying about surviving nuclear war. The focus should be on preventing it IMO.
And then the person has $300K in wealth sitting in an anonymous account that they can't spend, because they can't explain where they got it from without explaining their ploy.
If you want to go that route, you could just as easily claim you lost $300K to a hack.
First the stable coin issuers would would have to collude with each other to have any chance of success. Just because Circle would want to go a certain direction doesn't mean that Gemini or Tether would also.
Second any fork from a stablecoin issuer would be inherently hostile, and the legitimacy of the resulting chain that they dictated would suffer. Users of the tokens on the 'blessed' chain could easily cause a run on token.
Between these factors, a centralized stablecoin issuer taking control over a chain like this would result in close to mutually assured destruction. Yes, many (but not all) defi applications in the original chain would be severely impacted, but the forked chain would have no legitimacy with users either and they would be quick to dump the issuer's stable coins as quick as possible.
The Steem/Hive fork following Justin Sun's attempted takeover is quite instructive on what can happen when a hostile takeover of a chain occurs.
Wouldn't it have legitimacy with the actual fiat banking system though? TBH thats the side i'd personally pick if i owned significant eg USDC and it was only honored on one side of the fork.
We all know that Tether is a huge scam, and it underpins like 75% of Bitcoin transactions - meaning if it crashes it could take Bitcoin with it.
Adding onto that, stablecoins only really make long-term sense as havens for speculators and day traders. Do we really want to weaponize crypto markets like some kind of hyper-stock market?
But yeah, crypto collateral for crypto is a bit of an "if we die, we die together" decision.
Stablecoins are pegged to FIAT currency. They serve as an on-ramp into the crypto ecosystem.
Backing stablecoins like Dai with cryptocurrency instead of fiat is super dangerous because you need FIAT in a exchange crisis, not cryptocurrency. If you're trying to keep a 1:1 peg of Dai:USD, but you don't have dollars and only have crypto, then how are you possibly going to maintain that peg? Sell crypto for dollars on a different exchange and use that to maintain the Dai peg?
Who the hell is even designing this stuff?
If Tether starts to collapse, then the holders of the $73 billion tether are going to be desperate to dump it for something else. They may try to dump it for real dollars, but they may also dump it for bitcoin and other "real" cryptocurrencies.
Tether collapsing might even cause a massive bitcoin price pump.
That's what I look for in a currency that dreams of replacing the dollar: a massive price pump.
The US dollar has recently been experiencing a massive price pump priced in Turkish Lira. Does that make the dollar a bad currency? https://www.investing.com/currencies/usd-try
Your currency experiencing a price pump just means it's been collectively deemed to be stronger and safer than other currencies and undergoing a re-valuation. It literally happens to all currencies on the planet all the time.
In the same 5 years, the value of bitcoin has increased 1,000% against the US dollar.
Care to expound on the consequence to the citizens of Turkey? Because that is often overlooked when using this glib analogy.
I'll do it for you: your argument is meaningful at the expense of the livelihood of millions of people. BTC is a money laundering mechanism, the economy of Turkey is made of real people. The two are not comparable.
Turks who chose to trust their monetary savings in Lira are doing terrible. Their savings have been destroyed.
Turks who chose to trust their monetary savings in Dollars are doing ok. They're still getting debased, but slower than their fellow citizens. And relative their fellow citizens, they're doing amazing.
Turks who chose to trust their monetary savings in Bitcoin are doing incredible. They took a risk trusting something that many smart people say is dangerous and isn't worth trusting, and they've been radically rewarded for it. Their savings can't be debased and faith in the currency is only growing, even if it's happening in volatile fits and spurts.
Bitcoin is certainly used for money laundering, but so is every other currency. Banks have repeatedly been caught aiding criminal organizations. You're conflating some people using a tool for bad things with the tool itself being necessarily bad. It's not a good argument.
The bitcoin economy is also made of real people, like myself, who work a real job and pay my taxes, but choose to trust my savings in money that can never be arbitrarily debased by easily corruptible humans.
https://amp.theguardian.com/global/2009/dec/13/drug-money-ba...
A more probable scenario is that trading pairs against USDT will just get halted.
Predominantly retail traders who placed limit orders and didn't react to changing market conditions as fast as bots/institutions. Perhaps also some speculators who believe USDT may be able to reclaim the peg.
To believe in cryptocurrency means to believe in a world where stablecoins are outlawed and cryptocurrency is not, if that is even possible. When most of the value of cryptocurrency comes from it being impossible to kill, it makes it impossible to kill the stablecoins that can endlessly corrupt even the purest of systems.
> The way altcoins market themselves, generally, is to highlight the shortcomings of Bitcoin as though it were old tech or “Boomer coin”, and then explain how they are better than Bitcoin.
> When you dig into them, however, it turns out they are making tremendous trade-offs in one area to achieve additional capability elsewhere. They are sacrificing some degree of security, decentralization, auditability, and so forth, in order to achieve things like more features, more speed, or more throughput.
It is exceedingly rare to see altcoins describe the tradeoffs they made in honesty.
So, literally like reinvesting profits in proof of work? In PoW centralization forces are way, way worse for two reasons.
The first is because there are infinite economies of scale: as any mining operation grows, costs per hashrate drops. The starting point right now is a person mining at home, paying residential electricity prices and using air cooling, with an asic bought from an external supplier at a high markup. The end point is a mining company that uses its own power plants and its own chips, with custom made power supplies and cooling that potentially reuses the heat in some way.
The second is that mining is vulnerable to forced exclusion that can increase revenue per hash by orders of magnitude: one that's consensus based, and another economically based which can force a consensus-based exclusion. Controlling 51% of hashrate means that every other miner can be ignored, almost doubling revenue per hashrate. However, it's actually worse - because as competitors close, the dominant entity can reduce its active hashrate to a level just above remaining competitors, until nobody else mines, at which point mining can reduce to a very low level, just enough to keep random small miners from winning. In the case of an attack full hashrate is utilized, ensuring it fails. By the virtue of nearly ~100% of revenue being profit, the entity can amass and unassailable amount of idle mining hardware.
Economic exclusion means that it's possible to intentionally mine at zero profit to drive difficulty too high, ensuring others turn off. It's a strategy for a biggest miner that doesn't have majority of mining hardware, but by the virtue of being the largest entity has the lowest unit costs.
Of course, such an entity would have absolute censorship power.
It's the lowest energy point of the system - because while it's in principle possible to replace such an entity, it can be only be done by an even bigger entity, only changing the name at the top, but still retaining full centralization.
Those design flaws ensure PoW is certain to centralize, given time. The process is already well advanced - it started with individuals mining on their home pcs. Now miners are buying power plants.
PoS has next to zero economies of scale (just the negligible fixed cost of a computer used for staking), and there's no potential of forced economic exclusion - running cost are negligible, so while more stakers mean profit rate goes down, it can never force a loss. Additionally, while it's not implemented yet (at least I'm not aware of anything), the fact it's a semi-synchronous protocol also allows for automated censorship detection - with appropriate punishments. That's because active nodes would be able to see correct messages that should have been included, but aren't. This is fundamentally impossible in PoW, as it's a fully asynchronous consensus system.
Socially, PoS is as decentralized as coin distribution - which for some networks is a joke - especially Solana which only sold 1.6% of its initial supply to the public - probably the most centralized L1 coin in existence, controlled by just few VCs. Ethereum sold 83.33% of its initial supply (72M) in a public kycless sale, since then 42M eth have been mined. Supply is very well distributed among thousands of mostly tech nerds that bought before the current boom. As recently as in March 2020 one eth could be bought for $90. This is the most perfect population achievable for resistance to government interference.
In contrast, for already mentioned reasons, mining is already controlled by big companies.
Censorship is a more realistic risk from regulations forcing miners to censor. With PoW, there's no defense except moving to a different country - because it's impossible to hide warehouses with industrial power connections, not to mention power plants. In reality, as long as regulations don't kill the network outright ('just' an OFAC blacklist, freezing coins from ransomware, theft, other criminal acts) - and these regulations are enforced in places with cheapest available electricity - miners would comply. Once those miners attained a sufficient majority, laws would force them to orphan non-compliant blocks.
PoS staking is trivial to hide - it's just a computer with a network connection. The whole network could be made anonymous by utilizing onion or garlic routing. Regulations would be impossible to enforce.
In conclusion, PoS is superior to PoW in every single fundamental factor mentioned in the article, especially censorship resistance.
I don't agree that complexity itself is a factor for or against: complex things are certainly harder to build, but once finished and proven to work that becomes irrelevant - only the functional differences remain.
There's only one real advantage of PoW over PoS: PoW is a coin distribution method, while PoS isn't. However, 90% of all bitcoins are already mined, so that argument is already very weak and becomes weaker with each day.
At the end, these discussions are for nerds - the average person may just get the impression that 'person X is saying PoS is less secure' and be wary for a while, but given enough time of working well, ~nobody is going to care about the anti-PoS position.
Additionally, belief in PoW is economically self-punishing: mining costs billions per year, ensuring that PoS supporters, as a group, are getting relatively wealthier to PoW supporters. A cost difference of double-digit billions per year is very hard to sustain over longer periods. It also means that a PoS network can continue working with next to zero buyers - while below some level PoW becomes hopelessly insecure (see eg. 51% attacks on ETC) - making PoS much more resilient to economic shocks.
If so, the profit from a 51% attack would have to be taken very quickly during an initial double-spend, which limits the incentive to do it. Unfortunately, returns to scale, as you mentioned, still can mean that mining can trend toward an oligopoly. And that could have pretty bad effects if the biggest miners collude in ways that users don't like, but that aren't bad enough to drive them off the currency completely.
Why? There are many people that would even welcome a fully government compliant mining entity. The 'business types' like Michael Saylor. He co-founded 'Bitcoin Mining Council' which is a perfect foundation for a mining cartel. Another cofounding member is Marathon - which is already censoring bitcoin blocks according to OFAC sanctions list. Some old idealistic bitcoin would maybe sell, but that would be the extent of a negative market reaction.
Ironically it's turning out that banning mining in China greatly accelerated centralization, because cartelization of Chinese and non-Chinese miners would be hard to achieve. Contrary to China, America thinks it has global jurisdiction, so it's possible it may try to enforce future mining laws even on foreign miners. While a miner company in eg. Kazakhstan won't be closed outright, it would mean that owners of that company would risk extradition to America if they traveled to most Western and America-allied countries. Easier to just comply. Electricity in Europe is too expensive for it to matter, so mining in America naturally dominates.
I don't actually expect that to happen, because I think bitcoin will become irrelevant long before those slow trends manifest in censorship enforced by orphaning non-compliant blocks, but in the absence of that, it looks virtually certain that the mechanisms I described would manifest as an American government-sanctioned entity that every miner, globally, has to join and comply with all rules or get its blocks orphaned.
https://www.theblockcrypto.com/post/104263/an-ofac-compliant...
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"When a hard fork happens, stablecoin custodians cannot recognize both sets of tokens as redeemable for their money, since there are now twice as many total tokens (two full sets, one for each fork of the blockchain). They have to pick which blockchain is the valid one in their eyes, for which they accept redemptions of their tokens for money. And whichever one they don’t recognize as valid, has its DeFi and other stablecoin value eradicated."
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"The biggest challenge with these proposals is that the more features you add to a blockchain on the base layer, the less “small and tight” it is, and therefore the less decentralized it tends to be.
The question then becomes, are there shades of partial-decentralization that people will accept, in exchange for more features that the database can offer? And can those partially-decentralized blockchains survive attacks, disagreements, and other tests over the long term?"
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"And that’s not to say that all of the liquidity and price action is fraud. I don’t know how much is. It’s simply that, with the technology as it is, it is very difficult to distinguish what percentage is fraud and what percentage is real, and rising price action based on fraud can temporarily bring in real demand liquidity, making the difference between the two rather murky. This is not much of an issue for large cap liquid tokens but it’s potentially a big issue for non-fungible tokens."
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"Ethereum’s proponents often criticize (rightly) Solana as being too centralized, as their key defense for why Ethereum is better than Solana. But that puts Ethereum in a tight spot, because Ethereum’s proponents then have to criticize Solana as being too centralized, while also defending the fact that Ethereum has these centralized attack surfaces and greater complexity compared to Bitcoin. In other words, it has to justify what the right level of partial-centralization and partial-decentralization is, and that it has achieved this sweet spot."
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"The way altcoins market themselves, generally, is to highlight the shortcomings of Bitcoin as though it were old tech or “Boomer coin”, and then explain how they are better than Bitcoin.
When you dig into them, however, it turns out they are making tremendous trade-offs in one area to achieve additional capability elsewhere. They are sacrificing some degree of security, decentralization, auditability, and so forth, in order to achieve things like more features, more speed, or more throughput. And now the same thing is happening to Ethereum; newer smart contract chains offer greater efficiency in exchange for more centralization, and criticize Ethereum for not sacrificing more decentralization to scale faster."