Coin value is a social phenomenon anyway, so it’s kind of meaningless to assign cause and effect. My point was that electricity usage in PoW provides an external metric for assigning exchange value to the coin which is not self-referential, unlike in PoS.
That's not an accurate characterization of his argument (in [1]) about PoW vs. PoS. It's not about which one will burn more or less electricity - his point is that each burns an equivalent amount of economic value, be that electricity, capitaltime, liquidity, etc. PoS tends to burn less energy but compensates this by burning exactly as many dollars worth of capitaltime and liquidity.
My disagreement with this analysis is twofold:
- The capital that PoS burns has been created by switching to PoS. It's measured in ETH, and it's that extra value that hn commentors are referring to when they snidely remark that PoS is a good way to deflate your currency.
- The negative externalities of power consumption for PoW are both murderous and civilization-threatening. PoS has basically zero negative externalities.
Interesting but I’m not sure of the point. PoW by design is not energy efficient. The incentive is just not in the correct place. Interesting but if the goal is to show more energy efficient coins we need to be looking at different tech such as PoS. Although this might have just been a fun project someone put together in which case nice job.
Small quibble but broadly agree. In PoW you convert capital into electricity which then gets converted into coins. In PoS you convert capital into coins which then gets converted into more coins. Same starting material, same ending material, different intermediate steps. That's why my argument is that they're basically the same at the limit.
There is a deeper problem with PoS, which is about where the value of the staked token comes from in the first place. PoW ties this to the burning of real-world value, specifically electricity which is about as close to distilled economic value as you can get. Ethereum is trying to bootstrap value with PoW and then switch, but I have strong doubts that this is a sustainable solution.
One thing that PoW has for it is the idea brought up in the paper: where the coin is not just based on popularity of usage, fame or hype but its usage is actually measurable in a very real sense: through how much energy it consumes. The paper mentions how CPU power gives you (in a way) the ability to vote within the system.
With a famous PoS coin you can measure its popularity based on number of transactions and usage across the globe - but who can really tell that those transactions were just not very few users pretending to makeup a busy network?
With PoW on the other hand you have a very tangible way to measure interest in the network: they’re literally consuming energy and they’re literally many different entities since no single entity could ever consume that much energy.
In a PoW coin, if the cost of electricity < price of coin, more people will start mining, and vice versa. So let’s assume that over time, the price of a coin = cost of electricity to mine it + amortized/opportunity cost of the hardware (and assume that cows are spheres - https://en.m.wikipedia.org/wiki/Spherical_cow).
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.
Argument:
PoW is a security model that depends on energy usage and mathematics.
PoS is a security model that depends on human behavior.
I trust physics over human behavior any day. Human psychology is the weak link in any system.
In the next year, we will see a further consolidation of funds towards traditional finance (they have the capital to acquire the floating btc). We do not want tradfi in charge of coin emission. Proof of Stake is reinventing existing power structures. Bitcoin as PoW prevents this hostile takeover by legacy forces.
If tradfi and governments want a say in how coins are transacted/emitted, they better get mining!
Maybe try reading the post again? I have no affiliation or even opinion about that coin, but it is painfully clear for that post only that the proposed problem of value is
"valid consensus mechanism that scales of PoS and PoW networks".
Half of the comments on this page complain about how Bitcoin uses too much energy and how PoW is wasteful. This is a direct (allegedly, if what they write is correct) solution to exactly that.
I haven't written off anything. PoW is inherently flawed. It does not scale and Bitcoin has proven that. Bitcoin averages ~300K transactions a day while using more energy than some countries. That is unacceptable.
> useful property of PoW is that you can provide a proof that you destroyed physical resources
Thought experiment:
Say there's a PoW currency A, and PoS currency B.
Alice mines A.
Now Bob wants currency A, but he can't afford to mine currency A, because he needs special hardware.
So Bob exchanges currency B for currency A with Alice. Alice now holds some currency B, and Bob is happy with A. Now the question is, would Alice see that she "destroyed physical resources" for currency B? (Yes, to Alice she had to destroy physical resources)
Later, Alice wants to transact with Charlie, who also holds currency B. She transfers her B to Charlie, that was bought using A. Would Charlie care that Alice had to "destroy physical resources" to get B? (No, that information is useless in a PoS system)
Some time in the future, currency B becomes very popular (as it's just as secure and not wasting resources like currency A). Alice wants more B too, so she exchanges her B with the masses. Eventually, currency B takes over A in popularity, and by that time, Alice has exchanged all her A for B. The question is, would Alice now view that to get B, she had to "destroy physical resources"? Would that fact matter if she continues to transact with Charlie?
PoW allows for fair distribution of coins, esp. with a fixed block reward so as to avoid concentrating wealth on early adopters, and to deter speculation.
The only example we have of such an emission runs on less power than what a single windmill provides.
I believe that the downside of PoW can be greatly reduced by having the emission be purely linear (fixing the block subsidy). Taking 20 years to reduce the yearly supply inflation to 5% will strongly discourage speculation and keep the price low, in turn limiting miner energy use. It would encourage use as an actual means of exchange / currency.
> but it also get devalued relative to USD when these coins inevitably get sold to pay expenses
Good point. It invalidates the "good" part but does not make it doubly bad IMO.
> In both cases, it's gonna be the amount of capital involved that decides how the rewards are proportioned, there's no way around it
Yes. The difference is, PoW requires you to BURN resource proportioned to your rewards, while PoS just requires you to HAVE (but not burn) it. This makes a huge difference IMO. Having to burn resource is the whole point of such systems.
ok, so I had an upsight, to borrow Neil Stephenson's terminology. Speficifcally, that POW coins are inherently flawed. There is no fundamental reason to own one of them.
POS coins on the other hand, are a different animal. If you own a POS coin, you get paid transaction fees for helping verify transactions. Thus, POS coins make fundamental sense, can be valued accordingly and create a reason to actually own the coin - and should, therefore, prove a better store of value than POW coins. Of course, POS is somewhat theoretical, but if Ethereum can pull it off, it should supersede bitcoin. Now, ELI5 why I am wrong, please.
OP's argument is that PoS is a problem because the supply of tokens is finite, and that PoW doesn't have the same problem because it relies on physical capital instead.
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.
There is no subjectivity here. We are not discussing the perceived value of cryptocurrency. We are talking about the value of the PoW algorithm. It is objectively wasteful. It is wasteful by definition. It's entire purpose is to force computational resources to spend cycles on computationally expensive problems that provide no value to society. It is an interesting an novel idea but it does not scale and that is a problem since there is a very real cost to society in expending significant amounts of the planet's resources for no gain.
Look at it this way we know that PoW is wasteful as hell and because of that causes external issues on a huge scale. If we don't try to work out what those issues are and how big their impact is how would we ever deal with them? Putting our heads in the sand won't make them go away and the link details their methodology and results if you wish to quibble with them. Particularly as it addresses estimate accuracy directly.
More generally the whole external cost of PoW is definitely a case of techno-utopianism meeting the real world and a lot of proponents wanting to put on blinkers even though this study shows that crypto-currency is currently a net social positive. Literally any indication that it has any negative outcomes elicits very strange responses.
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