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Ethereum Proof of Stake FAQ
- beaner 9y agoProof of stake incentivizes low velocity of money - you have to stake to not have your funds diluted. This seems like the opposite of what the digital aspect of cryptocurrency should be bringing to the table.
- dahdum 9y agoThe goal is ~1% inflation, which is less than cash, and better than Bitcoin for many years (until ~2025 it's above 1%). So with lower fees, lower inflation, and higher throughput the velocity is more likely to grow significantly than decrease.
- brighton36 9y agoBitcoin inflation changes constantly, and by a lot more than 1%. Inflation is a measure of purchasing power. Not the issuance rates.
- rothbardrand 9y agoInflation is a measure of the growth in supply of money. Using purchasing power (or more specifically an artificially constructed and highly manipulated bag of goods measure called the CPI in the USA) is a switch to obscure the rate of inflation, as if it couldn't be measured directly. But Inflation always has been issuance, not purchasing power. Pretending otherwise isa tactic used by people who engage in inflation to try and obscure its effects (because purchasing power is affected by things like growth in productivity.)
- beaner 9y agoThen there isn't very much incentive to stake.
- drcode 9y agoThe reward is targeted based on participation- If too few or too many people stake, the reward adjusts to return the chain to the targeted participation rate. Economic models so far, however, suggest the reward needs to only be a tenth of POW reward.
- Analemma_ 9y agoThis post makes no sense. "Inflation" is an increase in the price of goods; this definition is both prescreptive and how inflation is actually measured. Since all the goods you can buy with cryptocurrency peg their prices to fiat, it's meaningless to talk about BTC/ETH inflation as a thing distinct from their exchange rates with the dollar, and that will continue to be true until a cryptocurrency economy develops that is not pegged to the dollar.
- rothbardrand 9y agoFalse. Inflation is as an economic term, the issuance of currency. Pretending like it's a measure of the price of goods is a political (not economics) tactic used by governments to obscure it-- because the price of goods are affected by other things--like increases in productivity, lower cost goods from overseas and the like.
- bpicolo 9y ago> In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. Currency issuance is related. Is not the same thing
- wmf 9y agoUnder proof of work you essentially end up "staking" money by buying ASICs/GPUs that take 9-12 months to break even. In general, miners are going to spend almost as much as the block reward, whether that's in hardware and electricity or in opportunity cost. http://www.truthcoin.info/blog/pow-cheapest/ http://www.truthcoin.info/blog/pow-cheapest/ And many people are "hodling" cryptocurrency as a long-term store of value anyway so presumably they aren't concerned with the velocity of money.
- Taek 9y agoLong term hodlers who haven't locked their coins into staking can respond quickly to network events such as Bitcoin-cash. People who are running mining businesses can at least sell the business if they suddenly need access to a lot of capital. With proof of stake, it really is locked up for whatever period of time. If your staking period is just a couple of weeks, this is probably less significant than owning a mining farm. But if your staking period is several months, the opportunity cost probably is greater than mining or hodling, because you sacrifice a lot in terms of flexibility.
- wmf 9y agoWhen you put it that way, I expect to see a secondary market for stake. This could be implemented by selling the private key or by delegation similar to a mining pool.
- DennisP 9y agoSelling the private key would be a bad idea since you can't guarantee the seller destroys it. But you could have the staker address be a contract, with an ownership that can be transfered.
- Taek 9y agoYou could use an HSM to hold the private key and then sell the HSM. Overall it's still a bad idea to buy an HSM because you don't know what other transactions have been signed, but maybe the HSM keeps a history of everything it has signed as well. Which, if you can still sell your staked coins, what is the point of locking them up in the first place?
- narush 9y agoI would argue that Ethereum isn't building a monetary system - it's building a platform for decentralized applications. If doing so decreases the native assets velocity (for the sake security, finality, ease of sharding, etc), so be it.
- fiatjaf 9y agoSo that's what you think cryptocurrencies are doing the better? Improving the VELOCITY OF MONEY?
- unlmtd1 9y agoETH is not money.
- lambdadmitry 9y agoThe whole "shielding from the inflation" thing incentivizes low velocity of money, too, so that is baked into most cryptocurrencies right from the start.
- kanzure 9y agoanother treatment https://download.wpsoftware.net/bitcoin/pos.pdf https://download.wpsoftware.net/bitcoin/pos.pdf
- brighton36 9y agoThank-you
- CJefferson 9y agoSo now the 1% (who own about 35% of wealth as far as I know) would get to write the rules however they like? Sounds fun.
- brighton36 9y agoIt's actually the exchanges that get to write the rules.
- jstanley 9y agoIt's everybody that gets to write the rules. As long as everybody is in consensus, there's one network. If separate groups end up with incompatible consensus rules, there's a network split. Miners, exchanges, developers, etc. don't have any more power than anybody else. Everybody's power is limited by the extent to which other people want to trade with them.
- Taek 9y agoPrevious proof of stake cryptocurrencies have typically struggled to get above 30% participation during the 'exciting' days of the coin, and it only falls off from there. Exchanges will often have anywhere from 15% to 40% of all of the coins in a token, which means that if exchanges choose to participate in staking, they will very likely have the majority among the staking participants.
- wmf 9y agoMiners are not allowed to set the rules of Ethereum or most cryptocurrencies (Tezos being a major exception). Miners could announce new rules and attack any chain that doesn't follow them, but the "economic majority" could simply perform a hard fork that destroys/confiscates the attackers' stake (much like how The DAO hack was "fixed").
- quickthrower2 9y agoDAO hack? The code is the contract ... except when it isn't.
- gaetanrickter 9y agoPoS has done a great job at attracting a loyal following e.g. http://reddit.com/r/ethtrader http://reddit.com/r/ethtrader and it only looks like it's gaining in momentum.
- gus_massa 9y agoWhat happens in case of a hard fork? How will they ensure that no one will validate blocks in the wrong fork? With PoW the miners much choose one fork or at lest split the hash power. With PoS the miners can validate blocks in both hard forks without too much effort. Moreover, if the 51% dislike the one fork, or the version before the fork, it's too easy to validate correctly in the part of the fork they like and launch a 51% attack to the other fork. This would have killed ETC and BCC instantly. (I'm not sure if this is a bug or a feature.)
- drcode 9y agoNo: If they validate blocks in both chains, their entire staking deposit is immediately destroyed (in both chains) This is one of the main innovations in modern POS algorithms.
- Taek 9y agoThat is only true for coins that are recognized on both chains. In the event of a hard fork, all you need to do is send your hardforked coins to a new address, and then start staking from that address. You can then vote on both chains with your coins, and no penalty algorithms will punish you.
- drcode 9y ago> all you need to do is send your hardforked coins to a new address staking coins are locked for for a minimum 6 months.
- flashmob 9y agoIf there is a hardfork and you're staking then I'd imagine you'll also be automatically staking on both chains, nothing to do. Hardfork only matter if you're transacting at the time of the fork, your transaction could be replayed on the other chain or if a reorganisation happens, in that case you may want to wait until the fork gets resolved.
- polyomino 9y ago
- cchero 9y agoThe cryptocurrency mining industry is worth about 3 billion dollars per year. About sixty percent of that is from Ethereum mining. Ethereum switching to proof of stake is a threat to billions of dollars in annual revenue. Miners should be rallying against this, and the budget they have for lobbying and pr could reasonably be nine figures. Ethereum miners are not the only ones affected. If two million gpus suddenly flood the market, either the resale value of hardware will nosedive, or the difficulty of all other coins will skyrocket. Miners who do not even mine ethereum should still be actively opposed to ethereum switching to proof of stake.
- MichaelBurge 9y agoI've felt like writing a "Money is not a real thing" article for a while, and this would be a prime example of why you don't optimize for revenue but rather e.g. physical goods. The generalization of your argument is that rapidly increasing productivity of any good is bad, because it decreases the relative power of existing capital holders. If all the miners on all proof-of-work currencies lost all their revenue and the currency was equally secure, I would consider this a good thing since the electricity could be allocated elsewhere.
- cchero 9y agoIf disney lost the copyright on their older works and copyright law started expiring after 20 or 50 years instead of the 100 plus today, I would consider this a good thing. People who make billions of dollars from the status quo have great power to maintain the status quo.
- CaptainSwing 9y agoI guess schumpeters point with creative destruction was the rupture required to replace one paradigm with another (Incidentally, he got this straight from marx). Technology, and markets, move in fits and starts as conservative tendencies meet with more efficient, or qualitatively different, competion. For both schumpeter and marx this view was seen as opposed to equilibrium models of economics on which much of mainstream economics and game theory still relies
- 9y ago
- davidgerard 9y agoPoS will turn into a stealth PoW if it is possible in any way to influence the outcome with money. The history of all economic activity shows people being willing to spend $49.99 to make $50. Though spending $49.99 of bank balance probably beats $49.99 of carbon. Have they got a proof of concept as yet, or is this all still vaporware that nobody on this thread should be talking about in the present tense?
- antocv 9y agoStill vaporware.
- ChrisClark 9y agoYeah, they have a proof of concept code up on their github, only started on it in the past few weeks though. Up till now it's all been math and research.
- cdetrio 9y agoThe first casper PoC was in 2015, and PoC2 was in early 2016.[1] However, there was a pivot from the early "consensus-by-bet" to the current version, which is based on "prepare and commit" messages. I think the current one is PoC4. [2,3] 1. https://blog.ethereum.org/2016/03/05/serenity-poc2/ https://blog.ethereum.org/2016/03/05/serenity-poc2/ 2. https://github.com/ethereum/casper https://github.com/ethereum/casper 3. https://github.com/ethereum/pyethereum/pull/791 https://github.com/ethereum/pyethereum/pull/791
- ChrisClark 9y agoThanks, that's a lot more than I thought.
- earlz 9y agoJust for an other-side perspective, people that enjoy this might enjoy my technical deep dive into PoSv3: http://earlz.net/view/2017/07/27/1904/the-missing-explanation-of-proof-of-stake-version http://earlz.net/view/2017/07/27/1904/the-missing-explanatio... It is a much older implementation that works on Bitcoin's UTXO model (rather than the account model in Ethereum) and without smart contracts. It doesn't have a solution to the nothing at stake long-term attack, but it thwarts all known short-term attacks. Personally, CASPER's solution to the nothing at stake problem is concerning. In an ideal world, it is ideal, but in a more practical world, I can definitely foresee someone doing something wrong or making a mistake (either developer bugs, or consumer running two wallets, etc), unintentionally making a block on another chain, and losing their $1M worth of ETH as a result. It only takes that happening once, maybe twice, to get people to think twice about staking, and when less people are staking with less coins, the network is much easier to attack (disclaimer: I work on a blockchain project that is somewhat a competitor to Ethereum)
- apo 9y agoDoes your project use PoS? Aside from the linked article, what PoS proposal has the best chance of solving the practical problems you mention? Edit: It looks like your post was edited to answer the second question. I'll check it out.
- narush 9y agoIn every interaction with a blockchain, users have the chance to lose all of their funds. User error in with regular transactions is a far more likely issue than anything else (though there is no denying the importance of the validator code being written). Also, running two wallets would not cause one to lose money. Running two instances of the validator code might - but why anyone would do that is unclear.
- xorcist 9y agoEthereum was supposed to have every feature under the sun from the start, proof-of-stake perhaps being the second most hyped. (Turing completeness being the clear first, which is problematic given the halting theorem and all that, so it's now rich statefullness instead.) And PoS is one of those ideas that most people looking at cryptocurrencies end up trying some variant of. PoW is obviously wasteful and it would be nice to improve on that. The problem is that it doesn't have the same properties as PoW have, and that are hard to do without. The problems are the basic ones, how to avoid colluding stakers, how to neuter the market for consumed stakes, how to deter chain splits. There is a constant flow of new coins that try various approaches, but the ones that have survived have all had to resort to some variant of checkpoints where a trusted third party decides on regular intervals which chain is valid. This has obvious implications for a supposedly trustless digital currency, where you don't really need that complicated blockchain anymore. This Ethereum PoS FAQ is much like other documentation from the Ethereum Foundation quite dense where most paragraphs introduce terms not seen elsewhere (economic finality? slashing? weak subjectivity?). If you want the interesting bit, the TL;DR, then skip to the part about weak subjectivity. Read it, and then read it again and bear in mind how other coins solved this problem. Tell me I'm wrong, but I think this bit with the key part being that the node "authenticate out of band", involve a certain third party with a Very Important Key. In which case the rest of the theory in the document doesn't matter much, does it?
- CryptoPunk 9y agoThe assumption is that social consensus works but is slow, so can be effective for determining which coins were deposited for staking three months in the past, since the social consensus process would have had three months to arrive at that determination. Individuals would likely use different means of arriving at this consensus, from public forums, to having personal lists of trusted nodes that their node polls, to referring to well known public blockchain explorers. And of course, if their own node was online three months ago, it wouldn't have to trust anyone.
- Taek 9y agoSocial consensus is vulnerable to the formation of factions, and only works when everyone is actually united. As we've seen from the 2-party US political system to the bch/segwit/segwit2x factions of Bitcoin, achieving social consensus around something is rare. I personally would not want to use social consensus to determine the result of chain turbulence caused by a weakness in the consensus code. If we are going to fall back on social strategies, haven't we forgone the biggest advantage of blockchain in the first place? (the ability to know the state of consensus without needing to trust anyone)
- deleted 9y ago[deleted]
- rothbardrand 9y agoProof of Stake is a mechanism by which people who own a lot of ethereum (notably the foundation and insiders) can get the mining rewards instead of the miners. It also means locking up the supply of ethereum draining liquidity and thus pumping the price. Technologically it is not good for security: http://www.truthcoin.info/blog/pow-cheapest/ http://www.truthcoin.info/blog/pow-cheapest/ But as a pump and dump, it's an excellent thing to do.
- cocktailpeanuts 9y agoI am also wary of proof of stake, but this is not something you can say with such a certainty, like you're doing. If someone asked "how safe is proof of work?" ten years ago, everyone would have laughed and thought you're joking. I'm only saying this because you're making a snarky comment while pretending to know exactly how it will play out. Nobody knows how it will work. Who knows? Maybe some unexpected human behavior like mining pools will happen in proof of stake approaches and it may end up going in a completely unexpected direction.
- nebabyte 9y ago> If someone asked "how safe is proof of work?" ten years ago, everyone would have laughed and thought you're joking I see PoW and PoS as nearly analogous in this regard - the rich can dominate both and so on - except that PoS is far less wasteful. I'm excited to see where this goes.
- aoeuasdf1 9y agoI agree. The article the GP posted posits that they are equally wasteful, but ignores the fact that: - The thing that they are wasting, capital, was created out of thin air by the act of switching to PoS - There are large negative externalities to burning power by mining with hashes, which increase the cost to society of using PoW vs. PoS.
- aoeuasdf1 9y agoOk this article seems to be willfully ignoring two advantages of PoS: - Liquidity and capital-over-time that you have to “burn” (which makes PoS just another type of PoW) is actually capital that was fabricated from thin-air. So while PoS is not less wasteful, the act of switching-to-PoS is a gigantic act of wealth-creation. - A much bigger point, relevant to the future of humanity on Earth: there are externalities to PoW which makes mining cost more to society than its $ cost to the miners. Instead of lobbying to include those externalities in the mining cost via various pollution taxes, we can sidestep it entirely by doing PoW with something that doesn't do physical damage to the earth: PoS.
- Method-X 9y agoIf you're interested in proof of stake, it's definitely worth reading about delegated proof of stake [1]. The gist of it is that token holders vote for the nodes (miners). So far as I've seen, it's the best way to address the issue of governance on a blackchain. 1. https://bitshares.org/technology/delegated-proof-of-stake-consensus/ https://bitshares.org/technology/delegated-proof-of-stake-co...
- runeks 9y agoDelegated proof-of-stake suffers from the same problem that all consensus algorithms suffer from: people will always be willing to spend, at most, n coins on producing n coins. The only way to avoid it is by giving particular nodes the special privilege of producing coins, otherwise the free market will push up the price until there is no profit left[1]. [1] http://www.truthcoin.info/blog/pow-cheapest/ http://www.truthcoin.info/blog/pow-cheapest/
- cocktailpeanuts 9y agoI am curious why people don't talk much about the "rich get richer" aspect of proof of stake. Most say "proof of work also is rich get richer scheme" to justify this, but in my opinion they are completely different because proof of work involves efforts that exist in the atom world (need to buy all the mining pools) whereas proof of stake involves purely digital efforts therefore the scale can be completely different. Am I missing something? Or is this people just being optimistic?
- aoeusnth1 9y agoI don't see this as a problem, because proof of stake must compete with other mechanisms to convert time*capital into more capital, and it has diminishing returns. If PoS has higher risk-adjusted returns than other investments, it will become more crowded until this is no longer the case. PoS provides real value - the maintenance of a blockchain - so it makes sense to reward the capital required for such maintenance accordingly.
- nosuchthing 9y agoIf the coin supply is inflated at some % of current account balance, or old coins decay then large PoS holders are incentivized to reinvest into the economy. Only online nodes provide value to blockchains. In a PoS blockchain an online node with 100,000 credits is generating equal value to a node with .03 credits.
- aoeusnth1 9y agoI don't buy the idea that all votes in PoS should be considered with equal weight. Otherwise it seems pretty easy to DOS the network with a ton of low-weight votes, get 51% of the network, and do whatever you want. The capital-weighted PoS system prevents this because if you want 51% to the network to be able to do abusive things, you have to risk devaluing your enormous PoS investment by destroying trust in the Ethereum network. I don't understand your first point, could you clarify?
- 9y ago
- lemonycracket 9y agoI'm so happy that I have about 20k of USD worth of BTC, ETH and a dozen other tokens. Never has it been so easy to invest in new startups while cutting out the middle man. The old VC model was disrupted about 2 months ago.
- anticrisis 9y agoThis is a lovely faq and quite informative, however I'd feel a lot better if there were peer-reviewed papers by researchers with some prior work on Byzantine Fault Tolerance.
- Taek 9y agoIt's worth pointing out that Byzantine fault tolerance has been around for almost 40 years, and yet it wasn't until bitcoin that you could build a decentralized currency that people felt confident in. Academic Byzantine fault tolerance is insufficient, because you cannot naively assume that most participants will behave honestly. They have to have an incentive to behave honestly, and there can be no room for dishonest behavior that would be more rewarding. There's a reason that it took so long to get a working digital cash - a new breakthrough was needed and that breakthrough ended up being Proof of Work. To trust a new system for decentralized money, I would want to see peer review not just from academics, but also from the leading bitcoin experts, who in my opinion are the only ones that really understand cryptocurrency.
- anticrisis 9y agoIt's true, it's an old field that remains (I think) in progress. I just fear that the confidence in decentralized currency you cite may be overly influenced by the profit early proponents have earned. Perhaps a few academic collaborations could generate peer-reviewed papers that leverage those decades of research alongside the practical experience of bitcoin experts.