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Proof of Stake vs Proof of Work

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An ancient debate in crypto terms goes head to head as ethereum upgrades to Proof of Stake (PoS) while the Proof of Work (PoW) chain keeps on running.

The invention of Proof of Stake in crypto usage is nearing a decade with it first applied in 2013, yet it is only now that a major coin transitions, though that was the plan since ethereum’s invention in 2015.

Proof of Stake offers the huge efficiency of keeping validating IDs into digital units of eths, instead of physical units of computing machines, like GPUs or Asics.

Running a network like ethereum thus becomes as easy as turning on your computer. Any one that has eth can participate in running the network. Thus all can also receive the network reward.

Using the asset unit itself as ID in the transaction validation process also has the benefit of slashing network energy demand by close to 100%.

All the rows and rows, and datacenters, of GPU and Asics computing power become unnecessary. Making the network very much green, efficient, very fast in the case of eth with 10 second blocks, far cheaper to run, and fully digital.

In addition as the asset at stake is eth itself, the incentives of eth stakers should in theory be better aligned than those of miners whose end asset tends to be fiat, albeit the difference is minor as that fiat comes from the asset.

However there are some downsides to Proof of Stake, which is why the ethereum Proof of Work chain will keep running.

The Nakamoto Consensus

Satoshi Nakamoto, bitcoin’s inventor, didn’t actually invent much. He just put together a lot of things that were already invented, including the blockchain which arguably in its raw form was invented by Linus Trovald, the Linux founder who came up with Git.

However he did invent something that is now named after him, the Nakamoto consensus.

Before him, to solve the Byzentine General’s problem, the Byzantine fault tolerance (BFT) consensus was used. This requires about 66% of actors to be honest, or 33% to be dishonest.

The Nakamoto consensus requires only 51% to be honest, the simple majority rather than a landslide.

Ethereum’s Proof of Stake will revert back to some sort of BFT. At least 33% of stakers have to be online and keep staking, otherwise the network basically freezes.

In an event, as we saw back in May-June last year when bitcoin’s hashrate dropped 70% as China kicked out miners while bitcoin kept running as normal, ethereum’s network would take at least a week to keep moving again.

However, eth doesn’t have the risk of such physical concentration, so a state would have it far more difficult to kick out stakers.

As such, for 33% of stakers to go down would be an extremely unusual event, and thus would it really matter?

It’s just to point out that PoW is more secure, but academics have shown that bitcoin can be attacked with 30% of the hashrate, so is it really?

Decentralization

This is the wrong word to use but let us imagine we’re suddenly in a completely totalitarian state powered by AI which can determine that your peer to peer fiat bank transfer is actually for bitcoin, or eth, and since totalitarians don’t like bitcoin, this of course has been banned.

In Oceania, can Proof of Stake eth really survive in the underground? You can always meet in person to pay in cash. No totalitarian regime can be so perfect as to really have the capabilities of both knowing and enforcing every bitcoin transgression, but at the very least the privacy is lower because the eth always comes from someone, rather than something.

In Proof of Work, you can always go to the remote mountains and mine from hydropower, so nature itself, away from any AI or fascist state.

Of course all this is hypothetical for some, but very real for some others and in our own time.

The inability to directly gain eth from the network itself in Proof of Stake is its biggest practical weakness, which is why ethereum’s co-founder Vitalik Buterin is very wrong to suggest the EthereumPoW fork is just a money grab.

It may be that of course, but it is also other things. To which Buterin may well say and did say: why not go to ETC if it is really just about the Proof of Work or network access.

Primarily because no one likes ETC, and because it is about six years behind the current eth network, and because ETC doesn’t give the current eth holders the choice of staying Proof of Work or going Proof of Stake or doing both.

In theory in addition if we go back to this hypothetical fascist state where a battle has been raging between cryptonians and the iron fisted government for years, some of those cryptonians may have chosen eth and so why would the ethereum community want to send them off to a coin they dumped in 2016.

Unless they don’t want to win the battle for Oceania, but it is difficult to argue against the proposition that, at least in theory, PoW is more decentralized simply because you can access the coin both directly from the network and from someone else.

How decentralized EthPoW will be however remains to be seen as it won’t be easy to keep that as just eth, but with PoW, rather than it turn into some miner’s chain.

Overall

A transition from Proof of Work to Proof of Stake is such a big endeavor that you would have been concerned if no fork was proposed because it would have suggested, that at least at a community level, ethereum had become a bit too centralized.

The fork proves otherwise, and it beyond being an opportunity to test-run a genuine chain-split, it is also a transition method because as much as the Beacon chain and the Merge has been tested so finely, it is still a new network untested in the wild, while current eth has been battle tested for seven years.

It is just code though, so if anything is wrong in PoS, the code will just be upgraded. Yet, we haven’t quite seen eth PoS work in full with all the defi and everything. It should all work fine, but it is only prudent that the PoW chain is kept until all that is proven.

Likewise no one knows just how much demand the direct network access through Proof of Work brings. It’s fashionable of course to suggest all crypto prices are pure speculation, but data at least for bitcoin shows that there is a base demand unrelated to speculation, and of course we all anecdotally know that such demand exists.

For bitcoin, it applies at a state level too for mining. That brings on questions about whether it isn’t a good thing that such a thing would be cut off, but neutrality is neutrality or it isn’t.

And if there is such demand, well why shouldn’t it be kept? Why should it be sent to ETC or even to bitcoin, instead of it continuing to go to current eth holders.

All of which means objectively there’s a reason for this fork to exist, and since they’ve laid no claim on eth’s ticker, it may well be somewhat silly to hate on it.

Or go further and call it an attack on eth when obviously you can’t attack something by simply existing, unless you’re totalitarian and see democracy as a threat.

Let people choose and freely and let eth bear the heat because if it can withstand it, it should only make it stronger.

Let us all also see just what is actually decentralized finance, and what is sort of, kind of, not really defi.

The code in addition should be launched next week as far as we understand. At that point devs will have a fairly big choice. Do they want to provide the market with a proper attempt at maintaining the network running, or not.

Because if this will be done, it will of course be up to the devs worldwide to decide whether it will be a half-assed attempt or a proper one.

And because of course this isn’t, or doesn’t have to be, Guo’s fork or chain. The Ethereum Foundation in fact could have launched its own because it is Buterin himself who once said let a thousand flowers bloom.

The foundation could have removed the difficulty bomb, put a chain id, unfreeze the staking contract, and reduce issuance to 2,000 eth a day for mining rewards.

But it’s easier of course to support competition in other chains rather than your own, however the Ethereum Foundation will be one of the biggest ethw holder, and so why do they care.

It’s happening regardless, but unless this is a very objective attempt, it may well be the Proof of Work chain in the end will be bitcoin.

Making it a test-run, a backup, a transition tool, but if there’s excellent execution then who knows, it might even attract its own market.

PoS though will of course be the most developed chain, and so it will have a different sort of most proof of work, but this has never been done before and so in a less emotional world, arguably EF itself would have launched EthereumPoW as a transitional tool or to give the market choice.

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  • Source: https://www.trustnodes.com/2022/08/06/proof-of-stake-vs-proof-of-work

This Post was originally published on Trustnodes

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