Besides no power consumption, does POS really have an advantage?

Proof of Stake Will Not Save Us

Original source: KF, Ethereum enthusiast

A Jian

Inside and outside cryptocurrency, more and more people are looking to proof-of-stake (POS) to provide us with the benefits of cryptocurrency while avoiding the energy-consuming nature of proof-of-work (POW). This hope will come to nought, as Paul Sztorc discussed this problem in his 2015 article Nothing Is Cheaper Than Proof of Work. PoS only confuses costs, but it is impossible to eliminate them. Here I want to talk about why PoW is like democracy: it's the worst way to do it, but it's the only way it works.

This article does not discuss whether cryptographic currency security is "worth" the cost, but rather whether POS is an efficient approach.

The best cryptographic currency is secured by the cheapest means

To properly compare PoW and PoS we need to take into account both the costs (carbon footprint) and the benefits (blockchain security). So, our question could be:   "Is the environmental cost of proof of stake lower to obtain a given level of security?", also can be   "Can Proof of Interest Achive Higher Security for a Given Cost?" The two problems are logically equivalent. In this article, we will use the second question:

Axiom #1: The most environmentally friendly cryptographic currency is the one that is most efficient in buying security.

Money is not magic. The currency must have certain security to circulate, and the way to obtain security is efficient. And the most efficient technologies will also have the smallest environmental carbon footprint. This is a very useful way to think about it, because it reminds us of a profound economic law: marginal benefits equal marginal costs. A blockchain that spends X dollars on security, that means the miners will spend a total of X dollars competing for this prize.

Axiom #2: If a cryptographic currency buys X dollars worth of security, its verifier will spend X dollars in total (for the reward).

This is an unbreakable economic law about competition. Any miner who spends less than he can earn will be beaten by those who are willing to spend more. And any miner who spends more than he earns will eventually go bankrupt. A blockchain spending X dollars on security will always end up costing the miners X dollars to defend the blockchain. The weight of the different types of expenses may vary, but all the expenses will add up to X dollars. It is as different as a kilo of cotton and a kilo of iron.

Electricity is only part of the picture, not the whole picture

When people say "bitcoin is a waste of energy," what they mean is that electricity is needed to power the mining equipment that produces bitcoin blocks; Ironically, on the one hand, this energy is clearly not all of the energy used to run the Bitcoin network, but only part of it. On the other hand, this is the part that is most directly used to protect the blockchain, so it is   The least & have spent The waste. To fully measure bitcoin's carbon footprint, we also need to consider the costs of hardware (manufacturing and obsoleting) as well as the costs of normal business operations (decorating a decent office and flying to Bitcoin conferences). The latter two types of costs are more ambiguous and harder to estimate. But they are just as important to understand the effects of the entire system.

Axiom #3: To consider the carbon footprint of a system, you must consider all aspects of verifier costs.

There is waste in each of these three types of activities. Inevitably, a lone block will appear on the Bitcoin network, and the energy needed to dig it up will be wasted. Some hardware is built, but it doesn't work perfectly. Some operating expenses are necessary, while others are simply a change of tea. The more closely an expense is tied to the actual work of verifying the blockchain, the more efficient it is in exchange for blockchain security. The analogy is that a machine with fewer degrees of freedom is more efficient: one more part leads to more useless work. The same is true of economic systems -- the more structure, the less efficient.

For example, travelling to build a relationship with a big customer can be abstractly translated into improving the efficiency of the whole business, and therefore also helps with the purchase of security -- but it is very indirect, and the purchase of security may not have the same effect as an equivalent expenditure on electricity. The more a cryptographic currency spends its security budget directly on electricity, the more secure it becomes; The more money is spent on commercial operators, the less secure they become. The CEO of a mining company may be necessary for the company itself, but he or she contributes little to the security of the network.

Axiom #4: The more an expense is associated with the actual action of verifying the blockchain, the more efficient it is to purchase security.

So sometimes you see people talking about it. 1  "Argue that they undermine the environmental impact of a cryptographic currency, but in fact the opposite is true. The specialization of mining equipment allows more computing power to be generated per unit of hardware, which means less of the blockchain's security budget is spent on hardware and more on power. This is good for efficiency -- ASIC mining is fundamentally cleaner than traditional CPU mining because ASICs are more efficient (and hence cheaper) at converting energy into safety.

This is also why people misunderstand the environmental impact of "proof-of-space" cryptocurrencies such as Chia, which use memory rather than computational power to validate blockchains. Using hard drives as a scarce resource for generating security does not reduce costs, but simply diverts the blockchain's security budget from electricity to hardware. If you measure the carbon emissions of cryptocurrency just by electricity consumption, it feels as if we've made a huge improvement -- but if you factor in the cost of hardware, it's a huge loss of efficiency.

There are a lot of idle hard drives in the world, so Chia is getting a bit of a subsidy. But don't expect it to last forever. When a cryptographic currency succeeds in monetizing computer memory, what has already happened on the GPU will happen again in related hardware. What's more, the system will end up being worse than an equivalent POW-based system because the security budget is spent on developing hardware, which is less efficient than a security budget that is spent directly on power.

Conclusion #1: The most environmentally friendly cryptographic currency is the one that spends the security budget on the things that are most closely related to validation.

Locking in capital is also real spending with real costs

Chia and other blockchains that use spatial proof are relatively easy to compare to PoW because you can easily imagine old hard drives filling landfills, so you can easily be convinced that they have a "real" impact on the environment. But the loss of capital also has real environmental consequences. Because that money could be spent on carbon capture technology and carbon efficiency research, and so on. People & have spent "Feeling" & NBSP; They are free (not consumed) simply because humans aren't good at thinking about time-value. If capital were truly free, miners would have access to it without paying anything.

And sometimes you'll see people claiming proof of interest that there's a waste from an individual point of view, but there's a savings from a social point of view, as Dan Robinson said:

- "Suppose your religion requires you to prove your sincerity by sacrificing yourself. You can throw an ox into a volcano or give it away to a stranger. Both things cost you the same (and therefore meet the commandment requirement), but the social cost of the first is higher." -

The opposite is true. Locking in capital is not a waste for you personally, because the POS pledge algorithm compensates you -- instead of the capital being thrown into the volcano, it makes money for you at the expense of other ETH holders. Locking up capital is quite different from giving it to a stranger, because there are no strangers to take over the money. Verifiers do not "distribute their capital equally to all"; in fact, everyone pays equally for the verifier's work (in the form of newly mined ETH). And, thanks to Axiom #2, we know what the verifier is paid. Exactly equal to   The cost of these funds.

On the other hand, locking in capital is seen from a social point of view. Is & have spent A waste, because the capital can no longer be used to build factories, fund research and do all the good things for society. Think of the financial crisis of 2008 -- no factories were destroyed, no houses collapsed, no physical assets were lost. The consequence is simply a loss of capital -- but it's still a very, very heavy social cost. Capital is a special form of information accumulation, which condenses the information about the optimal allocation of resources. The loss of information is not the same as the loss of something tangible, but it is just as much a loss, if not worse.

So, bearing in mind axioms #1 and #2, a fair comparison of POS and POW should look like this:

Certificates of interest do not (and cannot) eliminate miners' expenses, but merely convert the portion of PoW's spending on electricity into capital expenditures. Locking in the externalities of capital, as opposed to the externalities of electricity consumption, is a complex and nuanced issue -- but the bad news is that proponents of POS often pretend that electricity is the only cost:

- This deliberately misleading comparison, taken from the Ethereum Foundation blog. -

Disappointing. The Ethereum Foundation is well aware that "average energy consumption per transaction" is a completely meaningless metric, and that using this figure is a deliberate deception. The point is not at all whether the POS system uses less energy -- it does, but that's not the whole story. The meaningful debate is: is it better to consume capital or electricity? Any theory that supports POS without discussing the cost of capital is fundamentally wrong.

Efficiency comparison: pledge vs. mining

In the PoW/PoS debate, PoS proponents often take advantage of one thing: there has never been a fully decentralized proof-of-stake system. This also means that POS proponents can fantasize about how efficient and elegant the final solution will be. None of the known mining algorithms are perfect and efficient (for example, there is a "selfish mining" problem), and there is no reason to believe that POS systems can be watertight -- however, until the solution is finally complete, POS proponents need not consider what validators might use to cheat the system. Specific & have spent Strategy.

The more opportunities you have to fiddle with the system, the looser the relationship between the security budget and actual validation. Because "no one has ever tried a true proof of stake," we don't know in the first place how much of a security budget can be converted into locked capital, let alone how efficient locked-in capital can be in generating security. By definition, PoW is tightly coupled to validation, but PoS, as of this article, has not been fully defined.

Observation #1: PoW is tightly coupled to security. But it is not clear how far POS can go.

Externalities: Pledge vs. Mining

Assuming we all agree that locking up capital is as efficient as mining from a safety efficiency point of view, there is only one question left: "externalities." This is where I think rational people can still disagree about the trade-offs.

In the short term, POW will compete with other projects to use energy, but in the long term, it will incentivize the development and production of cheap energy, which will gradually reduce the cost of electricity and benefit everyone (both for financial purposes and environmental protection). Cheap electricity will also lead to new technologies and more production.

Proof of stake uses capital in the short term to compete with other projects, but it doesn't incentivize the creation of more capital, so it raises the cost of capital over time. The higher cost of capital means fewer projects -- fewer factories, less research.

Whether you prefer the externality of PoW or the externality of PoS may depend on whether you think it is better to solve the environmental crisis by investing in technological development or by saving on current consumption. To save the planet, should we make renewable energy cheaper or make everything more expensive?

Observation #2: Proof of work encourages future investments. Proof of stake, on the other hand, inhibits exploration.

PoS doesn't even work

As we said earlier, we do not yet know whether a sufficiently decentralized proof-of-stake system can be implemented. Existing cryptocurrencies that advertise themselves as POS systems generally rely on some centralized coordinator or "checkpoint." Since Ethereum's launch in 2015, they've been working hard to transition to a fully decentralized POS system, and so far, they've only released Phase 0, which is just prover pledge support... Once you lock up your money, you can't get it out and you can't spend it.

There is much debate about whether POS systems can be sufficiently secure (see 'Long-range attacks',' Nothing-at-Stake ', 'Workloads across time/equity are the opposite'). These are open questions for research, not a to-do list for implementation. We don't know how long it will take to find a good solution, or even if there is one at all. Check out this post from 2017:

PoS may "work," but it works in a pathological way. PoW favours those with access to cheap electricity and rewards them with capital. It's not exactly equal, but it's not a positive feedback loop. PoS favors those who can get capital cheaply and rewards them, creating a cycle. Rich people get richer, and the richer they become, the easier it is to become richer.

If proof of stake "can be activated," but the end result is that all power is concentrated in the hands of a small number of super-rich institutions who can permanently control the system, then it won't solve the problem cryptocurrency is meant to solve. We might as well stick with the current system of central banks and "insiders who benefit from the cantilon effect". We hope cryptocurrency will break the system, not the old wine in new bottles.

Observation #3: The proof of work is there and it can grow. But proof of stake remains an open question.

conclusion

Axiom #1: The most environmentally friendly cryptographic currency is the one that is most efficient in buying security.

Axiom #2: If a cryptographic currency buys X dollars worth of security, its verifier will spend X dollars in total (for the reward).

Axiom #3: To consider the carbon footprint of a system, you must consider all aspects of verifier costs.

Axiom #4: The more an expense is associated with the actual action of verifying the blockchain, the more efficient it is to purchase security.

Conclusion #1: The most environmentally friendly cryptographic currency is the one that spends the security budget on the things that are most closely related to validation.

Observation #1: PoW is tightly coupled to security. But it is not clear how far POS can go.

Observation #2: Proof of work encourages future investments. Proof of stake, on the other hand, inhibits exploration.

Observation #3: The proof of work is there and it can grow. But proof of stake remains an open question.

Unfortunately, upon closer examination, we know that most of PoS's "virtues" are just shiny looking, and that there are many significant public challenges. So far, at least, it remains a utopian fantasy rather than a realistic option. PoW, for all its flaws, is still the best known solution (indeed, the only one) for building a network that does not trust a centralized authority.

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