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>>In the mining case, the miner is purchasing equipment and electricity that divert real resources away from the production of other goods and services. >>In t

>>In the mining case, the miner is purchasing equipment and electricity that divert real resources away from the production of other goods and services. >>In the validating case, the validator is purchasing coin which simply causes prices to adjust and the economy keeps producing the exact same goods and services as if the validation activity did not exist (after a short dislocation, which would be very short in this case because few contracts are denominated in cryptocurrency). The value diverted to coin purchases ultimately has a cost in goods and services. It diverts economic activity to non-economically productive activity in cycling capital into and out of deposits, which results in less liquidity. I think Proof of Stake could potentially be better than Proof of Work, but the point about cost being equal across validation methods is correct in general in my opinion. There are specific circumstances where it is not true, like if producing the mining resource creates negative externalities. Where I think the article is wrong is in neglecting other aspects of consensus algorithm efficacy, like the potential security benefits from Proof of Stake totally aligning the incentives of owners of mining capital (which in the case of PoS is the network coins) with the success of the network.

1053r 9y ago
>>The value diverted to coin purchases ultimately has a cost in goods and services This is incorrect, or rather it is incorrect that it is different from the Proof of Work example, so it should be discarded from the analysis. Scenario 1) I work a paper route to purchase ASICs and electricity to bootstrap my mining business. The world got paper delivery out of me, and consumed some strained silicon and electricity for mining, which raised the costs of electricity and mining for other uses. Scenario 2) I work a paper route to earn ETH to validate. The world is the same as in Scenario 1, but the strained silicon, fab time, expertise, electricity, etc. all went to work on other projects instead of mining equipment, leaving the world slightly richer. (Perhaps a startup was able to purchase microcontrollers for their new widget at slightly lower cost, improving the return on investment for their founders.) Again, from a miner/validator perspective, PoW and PoS are the same, but from a global perspective, they are not.
- CryptoPunk 9y ago
  >>Scenario 2) I work a paper route to earn ETH to validate. The world is the same as in Scenario 1, but the strained silicon, fab time, expertise, electricity, etc. all went to work on other projects instead of mining equipment, leaving the world slightly richer. I provided a counterargument to this: >>It diverts economic activity to non-economically productive activity in cycling capital into and out of deposits, which results in less liquidity.

1053r 9y ago

>>The value diverted to coin purchases ultimately has a cost in goods and services This is incorrect, or rather it is incorrect that it is different from the Proof of Work example, so it should be discarded from the analysis. Scenario 1) I work a paper route to purchase ASICs and electricity to bootstrap my mining business. The world got paper delivery out of me, and consumed some strained silicon and electricity for mining, which raised the costs of electricity and mining for other uses. Scenario 2) I work a paper route to earn ETH to validate. The world is the same as in Scenario 1, but the strained silicon, fab time, expertise, electricity, etc. all went to work on other projects instead of mining equipment, leaving the world slightly richer. (Perhaps a startup was able to purchase microcontrollers for their new widget at slightly lower cost, improving the return on investment for their founders.) Again, from a miner/validator perspective, PoW and PoS are the same, but from a global perspective, they are not.

CryptoPunk 9y ago
>>Scenario 2) I work a paper route to earn ETH to validate. The world is the same as in Scenario 1, but the strained silicon, fab time, expertise, electricity, etc. all went to work on other projects instead of mining equipment, leaving the world slightly richer. I provided a counterargument to this: >>It diverts economic activity to non-economically productive activity in cycling capital into and out of deposits, which results in less liquidity.