We will see how proof of stake will work, and in FAQ is a paper about it. POS have one big problem, that you only have to buy coins once and stake them and you will get richer every day by doing nothing without any additional investment. Basically it will make rich richer and more centralized. We will see how it will works in future.
POS has a big problem when a coin starts as proof-of-stake. I agree with this. Because there's no fair way to do distribution. Many proof-of-stake coins happen to start out with the majority of supply owned by the core devs or VCs. It ends up becoming a cartel, which is not decentralized.
I think Ethereum's approach is interesting, because after 6 years of Proof-of-Work and several up and down markets, the distribution is widespread at this point. For example, even the co-founder Vitalik, only has about 300K of 115M circulating supply. So now I feel like they can migrate to proof-of-stake and it will not lead to excessive centralization.
Which is why I find it inevitable that any future cryptocurrency project will either have to start with Proof-of-Work during an initial minting phase then switch to Proof-of-Stake, OR use an existing blockchain to bootstrap itself, either as a fork or through airdropping. To these effects, any alternative consensus mechanism that is based on tying up a resource that's not the coin itself could be considered akin to Proof-of-Work (Such as Chia and its proof-of-capacity).
Anything resembling an ICO is a non-starter if it were to survive, especially with a shifting regulatory landscape. I was among the opponents to Ethereum's initial distribution (premine) but to wit, ETH has no supply cap so Vitalik's slice has shrunk over the years.
I would argue that auctions (ICOs) are fairer than mining. Devs can give themselves coins directly or they can have a dev tax (e.g. Zcash) or they can fail; I don't think it makes sense to hold crypto devs to a higher standard than, say, startups.
No, an ICO + POS is not fair at all. It might make sense for a crypto startup but not for a layer 1 blockchain currency. The base layer has to be plausibly neutral, or it defeats the purpose and you might as well open a Robinhood account.
Censorship resistance, plausible neutrality, decentralization, antifragility, uptime, and security are features of layer 1 blockchain systems like Bitcoin and Ethereum.
If a dev team starts off with 80% of supply they aren't going to ever achieve any of the above.
> Censorship resistance, plausible neutrality, decentralization, antifragility, uptime, and security are features of layer 1 blockchain systems like Bitcoin and Ethereum.
I completely agree, all the the above must come before throughput in an L1 blockchain. So many of the so called ETH killers sacrifice on some or all of the items you listed. Do you think anything else ticks all the boxes and can stand alongside BTC and ETH as a legitimate L1?
They're both unique because they're both the first of their kind. And they were doubted for years before they were shown to have value and staying power. The copycats have a problem especially when they hype themselves to $40B market caps before they have even grown a sustainable ecosystem or fair distribution.
The file storage chains like Filecoin, Sia, Chia, etc. may tick this box, but they aren't competing with Bitcoin or Ethereum. Any other unique proof of work algos that can't be easily hashed by ASICs or GPUs might qualify but I don't know. I don't see any others with a real grassroots ecosystem of activity.
This is not true, you have to run a validator to get rewarded. Rewards will be much less than miners get now, and the whole "rich get richer" is literally how investment works in basically anything, even Bitcoin mining
Yes, running a validator will cost some money. I will explain how I think. If the rich want to get richer he have to make good investment decisions and some work. In POS you don't have to do anything at all, just buy and hold. So in POS, you don't need to innovate your business model. In POW, you always have to innovate to be a leader. Bitcoin ASIC innovation in last years shows how strong competition is. And competition makes innovation. In POS you just keep coins and stake them. Thats it
This is often claimed to be an advantage of PoS: you can't get an extra increase in rate of profits by being richer (beyond the linear increase you'd expect). With PoW on the other hand, the richest have the best access to the most innovative technology and so you get superlinear profits the richer you are.
Real world case: Intel had the most advanced chip and more money, until one day AMD got better. In POS this scenario is impossible. First will always be first.
> This is often claimed to be an advantage of PoS: you can't get an extra increase in rate of profits by being richer (beyond the linear increase you'd expect). With PoW on the other hand, the richest have the best access to the most innovative technology and so you get superlinear profits the richer you are.
And yet, anyone who buys these proof-of-stake coins now, years after they were launched, suffers from having a cost basis orders of magnitude higher than that of the early investors. Yeah, they’re all superficially earning “the same staking ROI”. But in relative terms, the earliest investors are mopping the floor with the later investors, because the earliest investors can stake orders of magnitude more coins.
The earliest stakers become by far the biggest miners. They’re given an outsized influence over the network, and it’s sadly telling — and a bit unsurprising — that early PoS investors astroturf their coin by focusing on irrelevant minutia, e.g. “open access to staking ROI”, or whataboutism, e.g. “but what about ASIC miner distribution”. That is a classic Red Herring.
“Rate of profits” doesn’t matter more to fairness than, say, premining half or more of the outstanding supply of a given coin to give early investors absurd ROI advantages. “Fair access to yield” doesn’t matter more to fairness than exclusive pre-ICOs rounds which only prestigious investors have access to.
> And yet, anyone who buys these proof-of-stake coins now, years after they were launched, suffers from having a cost basis orders of magnitude higher than that of the early investors. Yeah, they’re all superficially earning “the same staking ROI”. But in relative terms, the earliest investors are mopping the floor with the later investors, because the earliest investors can stake orders of magnitude more coins.
Sure, but how is that any different than proof-of-work early adopters becoming rich and being able to afford more mining hardware and electricity?
> Sure, but how is that any different than proof-of-work early adopters becoming rich and being able to afford more mining hardware and electricity?
You have to spend money on mining hardware and electricity to get those yields. To do that on a large scale requires a datacenter and enormously expensive long-term power contracts with utility companies.
But with PoS mining, little to no effort is required. Click a button, and start earning yield in perpetuity.
Put yourself in the shoes of an early adopter of any PoW coin. At what point do you decide to spend millions of dollars ordering mining rigs from Asia, and setting up a datacenter with power contracts? Whereas with PoS this is simply a matter of clicking a button, which costs almost nothing and can be done more or less instantly. It’s a night and day difference.
So is your argument that the profit from mining PoW currencies is actually sub-linear with the initial investment because it's more expensive per unit to get larger quantities of hardware and electricity, and so that counteracts the gain that early adopters have had?
That doesn't seem right to me, economics of scale suggest it should be cheaper per unit to get larger quantities (even if there are additional difficulties doing so at a big scale).
The difference with PoW mining is it involves more than just clicking a button.
Conversely, with PoS, people — and particularly insiders who are in on the ICO, pre-ICO or premine — can click a button and earn X% per annum in perpetuity. Which they do.
Bitcoin has many problems, it just doesn’t have this particular one.
> But in relative terms, the earliest investors are mopping the floor with the later investors, because the earliest investors can stake orders of magnitude more coins.
PoS networks are typically not going to be minting coins in perpetuity. Most PoS networks aim to reach a "zero issuance" state where the network can sustain itself on TX fees alone. It's also typically in a networks interest to decentralise TX verification as much as possible (in contrast to banking, which tends lean towards the opposite).
Ideally a PoS network will reach a steady-state where TX verification is profitable enough that people will be willing do it for TX fees alone, but efficient enough that you can be market competitive regardless of how you choose to run your validator nodes (ie. costs should not be prohibitively high as to prevent geographical distribution).
There will always be rich and poor people - PoS networks don't aim to solve that - but the question will be is a rich person able to participate in the network more efficiently than a poor person.
> Most PoS networks aim to reach a "zero issuance" state where the network can sustain itself on TX fees alone.
Whether ICO investors are stakemining coins issued through inflation or transaction fees doesn’t matter — they’re still mining orders of magnitude more coins, at the end of the day. Their artificially low cost basis translates into them reaping outsized profits which dwarf that of later investors.
(And frankly, it’s absurd the PoS astroturfing has gotten so out of hand that this needs to be pointed out at all.)
> If you bought $1000 of AMZN shares 20 years ago you'd have orders of magnitude more voting power than someone who buys $1000 of AMZN shares today.
Equities typically aren’t masquerading as global currencies. Fairness does matter, here.
It’s absolutely material that the pseudonym “Satoshi Nakamoto” had no reasonable expectation of profit at the time of launching Bitcoin c. 2009, for instance.
It’s also material that Bitcoin miners couldn’t continue mining bitcoin absent continuously ordering new ASIC miners from Asia, whereas PoS miners can plop down cash on day one, and mine the same proportion of coins forever at little to no additional cost.
AMZN investors aren’t typically peddling narratives involving fairness the way PoS investors are. These people are claiming PoS is “more fair” than Bitcoin. It’s profoundly incorrect, but also rather unsurprising.
I don't think anyone here is saying that PoS is somehow solving world poverty. The people who claim PoS is better than PoW typically do so because it is more power efficient and still capable of running an effective monetary network (at least what we've seen so far). I don't know anyone who says PoS is "more fair" although I would argue that delegated staking is certainly more geographically friendly than PoW (and to an extent, PoS) which will inevitably end up geographically focused in areas with low cost of operation (cold areas with the cheapest power and rent). PoS could be done on a Raspberry Pi plugged into your modem.
> It seems like that argument could equally apply to PoW or startups.
It isn’t clear to me what you meant to say here. Early investors tend to be by far the biggest winners in general, crypto or not. However, we were discussing mining revenue, not profits in general.
Importantly, early PoW miners had to source new ASIC mining rigs from China year after year, pay to install those ASICs in datacenters, and pay for the electricity to power them. For the better part of a decade. Only then would they have continued earning bitcoin mining revenue at all.
Conversely, PoS staking yield requires little more than showing up with cash on day one. From then on out, PoS stakers earn mining revenue in proportion to their holdings. It costs them almost nothing to do this in perpetuity.
In addition, PoS is sadly linked with ICOs, pre-ICOs and pre-mines. These financial shenanigans allow early investors to stake disproportionately more coins than later investors. IMO it’s highly misleading to present this situation as being somehow “more fair” than PoW mining.
>However, we were discussing mining revenue, not profits in general.
If you are talking about mining revenue then you are completely wrong about what you have been saying so far, because the rate at which you receive mining rewards is usually around 5-10% pa.
What you're trying to do is have your cake and eat it too. You admit that you are not talking about early adopter profits in general, but you complained above about cost basis of early adopters being low (that's how early adoption typically works).
This is the same as complaining about someone investing in 10 year government bonds and then the underlying currency increasing in buying power.
You could go buy Argentinian or Venezualan bonds right now and hope the peso or bolívar goes up in value. It's no different, all you need is seed money to get started.
In spite of what PoS investors commonly claim, stakemining $COIN isn’t “fair” merely because Joe Bob can earn the same X% per annum that $BIG_VC can earn, where $BIG_VC was able to invest at pennies on the dollar in an ICO, pre-ICO or pre-mine.
PoW mining is fundamentally more fair than PoS mining because $BIG_VC has to spend money to mine at all. To mine a PoW coin, $BIG_VC needs to pay for electricity, for ASICs and for datacenter running costs. Conversely, in PoS, there is no true “mining” — investors essentially park their cash and start earning a yield on it cost-free. Ergo it adversely impacts fairness of mining when a PoS coin is 50% premined by investors at pennies on the dollar.
It’s an incredibly dubious narrative that the situation with PoS mining here is as fair as Bitcoin mining, let alone more fair than Bitcoin mining.
By that logic, diligent savers who put their money in a savings account to earn interest isn't "fair". It's fundamentally more fair to invest in expensive heavy machinery and dig precious metals out of the ground.
> By that logic, diligent savers who put their money in a savings account to earn interest isn't "fair". It's fundamentally more fair to invest in expensive heavy machinery and dig precious metals out of the ground.
If by “diligent savers” you mean the Queen of England who was given 10% of the total supply of British pounds on day one, then yes, it very much isn’t fair. The Queen’s fortunate genetics in relation to her preferential access to British pounds, and the interest income generated from that preferential access is just one step removed from $BIG_VC getting in on an ICO, pre-ICO or premine by virtue of having insider connections.
Also: of course digging up gold out of the ground is more fair than effortlessly profiting from your country’s political system.
In PoW coins you permanently lose the "stake". So that just means that to achieve the same level of security in a PoS coin, you have to stake a lot more (since you are only losing the time value of the stake).
> In PoW coins you permanently lose the "stake". So that just means that to achieve the same level of security in a PoS coin, you have to stake a lot more (since you are only losing the time value of the stake).
PoS network security reduces down to top-down human intervention: because PoS networks are unmined, they lack all hashing power which could otherwise be used to build a quantitative fork ranking protocol. When forks occur in PoS, the network stewards have to “pick” a winning forked chain, and enforce that decision on the entire network.
Because there’s by definition no hashing power involved in reaching that decision, it’s a bit of a wonder why PoS networks rely on blockchains at all. PoS security doesn’t really depend on anything other than the level of trust you have in the centralized authorities who control the PoS network. In the best of cases, it’s akin to trusting a Debian-like organization to annoint a specific branch of a Git repository as containing the true history of changes during any project-level dispute.
Unfortunately it's more complex than that. You can't rely on number of stakers for anything because of sybil attacks. You also can't rely on amount of stake because some of it could be double-staked (you can detect this but it still may not help you choose which fork is legit). The solutions to PoS fork choice don't really fit in an HN comment.
You're assuming that PoS is divorced from competition and innovation. Those who innovate tend to earn capital, be it fiat, or let's say Ethereum here. You're assuming those that have Ethereum didn't innovate in some way up the line to be able to buy their earned share. And if you want more shares for PoS, well, you innovate and earn to buy more shares. Your model only works if you assume a very closed and proprietary economic system.
>And if you want more shares for PoS, well, you innovate and earn to buy more shares.
If the devs have a 51% share of staked ETH and they never sell any ETH then even if you buy all ETH on the market you will never get beyond 49%. The only way that can happen is if the devs to decide to hand over control to you voluntarily.
>Your model only works if you assume a very closed and proprietary economic system.
What you are assuming is that the economy exists for the sake of Ethereum, people work and exist so that they can buy ETH shares for POS but reverse doesn't apply because owning ETH only entitles you to earning more ETH, nothing more.
This is a trap that a lot of cryptocurrency enthusiasts fall into. The decentralized nature of blockchains doesn't extend into reality. You cannot have a house deed on the blockchain because it would require a central authority outside of the blockchain to recognize the deed. Therefore information can enter the Blockchain and be stored there, but it cannot have impact outside the blockchain because the world isn't being simulated inside a decentralized blockchain.
In that regard the blockchain is similar to a sandbox, the only thing that exists is the sandbox itself and all the data you have decided to store inside it and since a lot of the data is meaningless, the focus is put on the sandbox being a goal in itself.
Another common trap is to build a programming language where the only significant project written in that language is the compiler.
>If the devs have a 51% share of staked ETH and they never sell any ETH then even if you buy all ETH on the market you will never get beyond 49%. The only way that can happen is if the devs to decide to hand over control to you voluntarily.
In that case the currency loses value to other currency competition because currency, Eth in this case, doesn't exist in its own ecosphere. The big holders still have an incentive to sell some portion of it.
PoS signifies the power of currency just as PoW does. The whole basis of PoW is to expend work and in return exchange and project power. Stake is projected power earned, sometimes not because not everyone is said to earn what they get, from other expended power. The whole world works on powers, be it financial, physical, etc and we're all exchanging one for another. As long as those powers have power to project themselves and protect themselves enough to propagate well, either through military or math (through the network), they are valid. The network is its own authority (much as the military or government is a network) and through various governments, hard powers, cryptocurrencies have also recently earned some legitimacy that way.
To me this all seems silly. You can trade sticks and if someone imbues them with symbolic powers and everyone agrees, it can just as well become a currency. We can disagree from here to the moon on what currencies or methods therein should or shouldn't have legitimacy but if no one cares, you have little to no power to change it. If you can get a big network behind it, there's legitimacy of authority whether you agree or not.
> Therefore information can enter the Blockchain and be stored there, but it cannot have impact outside the blockchain because the world isn't being simulated inside a decentralized blockchain.
And to reiterate, economic predictions are very hard due to us not living in a closed economic system, other powers influence economics, they don't exist just within their own sphere. You seem to imply this but seem to forget that your same argument could also be applied to traditional fiat. Blockchains may be decentralized but they have their own authorities and realities to which they're bound to. What happens in the crypto world very much affects the non-crypto world as we've seen.
>Another common trap is to build a programming language where the only significant project written in that language is the compiler.
The common theme here seems to be that you're railing against domain discretion, which itself, is a valid strategy within certain domains but I've reiterated that it has its own negatives in that nothing is totally discrete in reality, you can't have your own perfect domain without influence of other domains. Eth in this case, or PoS specifically, doesn't and can't exist within its own reality, it's no more a feedback currency than traditional fiat which is exemplified in that the rich tend to get richer, a theme which exists in many other domains, power attracts power, there's no escaping that. Yet there is a universal fairness in that more power for individual benefit means more power that can turn against you, which is a whole other topic. I think you're trying to argue against something more universal and it's pointless because it's so embedded in the universal machine. PoW, PoS, whatever, both require vigilance to acquire and maintain power that are ultimately derived from some form of work in the real world, regardless of method. PoS is old money, it can perpetuate decadence in the real world by relying on what's done while PoW, new money, may exemplify newness and chaos by relying on change or what's to become, both can work as methods of power transactions in crypto just as in the real world.
Silly argument, I spent way too much time talking about this so guess that means I'm silly, no doubt about that.
>Basically it will make rich richer and more centralized.
So PoW doesn't have this problem? It costs money to run mining hardware and supply electricity. The more valuable a PoW coin is, the greater incentive there is to run more hardware. With Bitcoin specifically the block rate is limited via the difficult adjustment. With this in mind it sounds like whoever is mining will get richer faster and centralize the competition.
PoS just abstracts all of this into the code itself. I don't buy the quoted argument.
You right, but I will write how I think. Incentive in not only to run more hardware, but to run more effective hardware. This incentivises innovation. In POS you don't need to do anything else. Just stake coins. No innovation, you can always be a monopoly if you have the cash to make a one-time investment. In POW you always have to invest to be competitive and have the most competing hardware.
While you need to be rich to be able to mine Bitcoin, you also have to dump those mined coins on the exchanges to cover your running costs (electricity, hardware, server operators, etc).
> While you need to be rich to be able to mine Bitcoin, you also have to dump those mined coins on the exchanges to cover your running costs (electricity, hardware, server operators, etc)
You don’t have to be rich to mine physical bitcoins, you just won’t mine very many of them. Same as it works in PoS — join a mining pool.
Or buy mining equities, e.g. Blockstream’s BMN token (not an investor).
It’s funny how much flak PoW networks take from PoS investors, and it’s pretty blatantly due to investors investing in things which aren’t PoW. None of the PoW criticisms in play today save for the environmental ones — and even those are subject to considerable astroturfing [1] — are supported by fact. In spite of what PoS investors commonly tout, PoS as a technology is neither theoretically sound, nor practically proven in any sense [2].
It literally codefies "the rich gets richer" deep into the protocol. While I'm pro-eth, this makes it a lot less "fair" in my opinion.
With PoW, miners can't really hold on to the coins for very long, so they have to dump it to cover electricity and hardware costs which always creates supply whereas with PoS, a staker can just hold on to the coins they get forever at no cost and their share of the pie keeps getting larger and larger forever.
To be clear, I'm not complaining, if eth decides to pay me 5-10% per year based on my holdings for a simple cryptographic signature, I'm not gonna say no, but it definitely creates a weird dynamic where new entrants will have to buy at the price the stakers decide to sell, which could be sky high since we have no pressure to sell.
The difference is that anyone can stake. It's going to be the default way to store ETH akin to a savings account for most people so pretty much everyone is going to share in that PoS issuance. This also doesn't affect new buyers as they are buying ETH to use it most likely so it's not being held long term. If they decide to buy long term then they also get the PoS issuance so everyone wins.
The base protocol uses 32 ETH for technical reasons but yes, as you said, pools like RocketPool, Lido, etc along with exchanges like Coinbase, Kraken, and even everyday banks also allow staking any amount of ETH by anyone to take advantage of the stable staking returns. In a practical sense there's no barrier to staking ETH and it'll likely be the default way to hold ETH long term as a low risk savings vehicle.
It wont be 5-10% for long. At steady state, it'll be a tug of war between staking Ether in the beaconchain, or depositing Ether into defi protocols. While it might seem like your ETH are just passively earning, actually staking 32 ETH today can be quite involved, so it's not exactly passive at the protocol layer.
That paper is quite old, and I believe its objections are addressed by new PoS systems. In particular "costless simulation" is addressed by using cryptographically verifiable randomness, e.g. the VRF-based lottery in Algorand, and the VDF in Eth 2.0.
No one is getting richer in PoS. The currency inflates at the same rate. It's similar to stock split. You get more shares in the same ratio as the value is reduced.
In PoW, energy is used to mine more coins. Thus, total value of the currency grows.
There's a difference between inflation from thin air, and inflation from added energy / work.
