9 ms·

Nothing Is Cheaper Than Proof of Work (2015)

118 points by lalaland1125 9y ago

gefh 9y ago
Well, fiat currency seems cheaper than PoW, even accounting for the cost of enforcement.
- dullgiulio 9y ago
  You mean paying for police forces is cheaper than PoW? I would hope not, but it doesn't matter. We need police forces even if we use cryptocurrencies exclusively, or you can just point a gun at someone to get their private key.
- neilwilson 9y ago
  Fiat currency is just a paper/electronic record of a promise. Because money is a promise, not a commodity. There will always be promises, because that is how humans trade: "Here's a pig, pay me back a pig's worth sometime". There you go - you just created money.
meri_dian 9y ago
"First, the argument is ridiculous because Bitcoin is already doing something useful for society (mining wouldn’t be profitable if it wasn’t)." Errrr, no. That's not how things work. Mining is profitable because it produces bitcoins which are valuable. Whether they are valuable because they are useful to society or because of some other reason is unclear.
- Fnoord 9y ago
  What you quote I also wanted to quote. It appears to be a fallacy, though I'm unable to pinpoint which one it is.
  - meheleventyone 9y ago
    I’m pretty sure the quoted piece is ‘jumping to conclusions’ by labelling all profit making activities as useful to society. Basically the logic is very straightforward but the premise is faulty due to bias.
    - cornholio 9y ago
      I would also point out the circular logic: - distributed payment systems are valuable to society (true for our discussion) - POW is the only way to implement them (his overarching conclusion, that may or not be true) => Therefore, POW is not wasted, but a legitimate cost of such systems.
    - viraptor 9y ago
      It's the first time I think this description of extreme capitalism really fits: "See where this line meets that line? That's why these people have to starve." It's value for value's sake. It's the numbers that matter. It's the pure, isolated economy. Anything external doesn't matter and we can write a long analysis that ignores everything outside of this supposedly closed system.
- omarforgotpwd 9y ago
  They have value because they can be exchanged with others (who will probably value them according to the market price) and because they are difficult and expensive to make. Just like dollars or any other currency. But what he's saying is true, if Bitcoin did not perform any function it would have very little market value. So in a way the market value is an expression of the fact that people are finding it useful for something.
  - dullgiulio 9y ago
    They do. For the overwhelming majority, this something is gambling. Whether that's useful for society (especially, decentralized gambling) is open for debate.
    - omarforgotpwd 9y ago
      Gamling and speculation are certainly use cases. They're not the only use cases. Money laundering, drug sales, protecting assets against seizure, political dissent... basically anything where the Government / financial system has shut you out from the market. I say "useful" only in the sense that it clearly has uses. Even if you don't believe these activities are beneficial to society, you can still concede that they are useful in that people are using them.
RobLach 9y ago
Having a state control a currency seems to be.
lwansbrough 9y ago
I think a implicit-trust powered blockchain is provably cheaper, provided you can guarantee trust for a sufficient amount of time. One such example I can find is Luckychain[0] which is where I'd start if I was going to attempt something like this. Intel SGX is the closest thing we have to a legitimate system in which we can place trust in the client. That being said, it requires trusting the signer, Intel. And we have to trust that it can't be cracked even with government-level capability, for the duration of the network's lifetime. I wonder if you could somehow move the job of signing onto the blockchain itself, so it becomes self-trusting and autonomous. [0]https://github.com/luckychain/lucky https://github.com/luckychain/lucky
Nomentatus 9y ago
Periodic release is the problem; I'm tempted to suggest that what's needed is a currency consisting of a set number of coins all released at one moment by a government or large corporation or institution but not thereafter controlled by said entity. A minor variation would have that entity retain ownership of most coins - which are released and in its wallet - to spend over time. Let's say, a United Way issued coin 10% of which was spent (auctioned for contributions in dollars) each year for ten years. After which point, the coin would be free of any connection to the United Way. But there has to be a small charge, in work, to keep your coins valid in order to maintain the blockchain/shared ledger. Weirdly, this has sorta been tried with a real currency, Alberta (Canada)'s "Velocity Dollar." It was ruled illegal before being fully put to the test, but since it could be used to pay taxes to the government, it would likely have worked, at least as a supplementary currency.
dlubarov 9y ago
The idea that marginal costs necessarily approach marginal revenues is plain wrong. The Ethereum wiki [1] says it best: > It's not enough to simply say that marginal cost approaches marginal revenue; one must also posit a plausible mechanism by which someone can actually expend that cost. For example, if tomorrow I announce that every day from then on I will give $100 to a randomly selected one of a given list of ten people (using my laptop's /dev/urandom as randomness), then there is simply no way for anyone to send $99 to try to get at that randomness. Either they are not in the list of ten, in which case they have no chance no matter what they do, or they are in the list of ten, in which case they don't have any reasonable way to manipulate my randomness so they're stuck with getting the expected-value $10 per day. The author here suggests that grinding attacks could be that plausible mechanism, but in a PoS system with a minimum account age, grinding attacks depend on being able to predict the state of the blockchain's entropy after that minimum age has passed. See [2] for some ideas about how entropy can be generated. Keep in mind that grinding attacks aren't free due transaction fees, so an attacker needs a certain degree of confidence that an entropy state will occur in order for a grinding attack to have a positive expected value; they can't just create a huge number accounts to cover all the possible states. In a well-designed system, the minimum account age and minimum transaction fee will be chosen such that all grinding attacks have negative expected value. [1] https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ [2] https://vitalik.ca/files/randomness.html https://vitalik.ca/files/randomness.html
- zby 9y ago
  The quoted text does not support your thesis - come on! It admits that C=R might be true - but argues that this is not enough.
  - dlubarov 9y ago
    I see how you could read it that way based on the first half-sentence, but if you read the rest, it's saying that C=R is not always true.
- middayc 9y ago
  > then there is simply no way for anyone to send $99 to try to get at that randomnes can't I send one of the 10 people $99 today, and he pays me out in 10 days? Can't that person rent the fact he/she is on the list of 10 out. I am new to economic terms, but it seems your example even better shows his MC_rent + MC_nonrent = MR. Where he says in p2p systems MC_rent should be 0, because it's exclusionary. Again .. your example's main feature is that it excludes all but 10 people.
zby 9y ago
This is an interesting argument - but it is based on the assumption that with the same money you buy the same security independently of how that security is implemented. That does not seem to be true. There is already an update that article: http://www.truthcoin.info/blog/pos-still-pointless/ http://www.truthcoin.info/blog/pos-still-pointless/ which partially takes into account the critisism. And here is my reply to it: https://medium.com/@zby/proof-of-stake-can-be-cheaper-than-proof-of-work-da14223a965 https://medium.com/@zby/proof-of-stake-can-be-cheaper-than-p...
SrslyJosh 9y ago
Nothing says credibility like TRUTH COIN DOT INFO.
jagger27 9y ago
(2015)
- flyGuyOnTheSly 9y ago
  Yea... when the author started complaining about Peercoin and that somehow being related to what Ethereum is working on today... he lost all credibility with myself at least.
- lalaland1125 9y ago
  As far as I can tell, almost all of the arguments in this piece are still valid. Is there any recent work which argues that it is possible to have something cheaper than proof of work?
  - rspeer 9y ago
    Not using cryptocurrency is cheaper than proof of work.
  - annywhey 9y ago
    The article is based around bundling together a lot of small points and backing it up with shaky analogies to economic theory(e.g. an undergraduate course would probably focus on utility instead of rent). It's framed in a way that I would consider more persuasive than academic. It has a general point, in that the ultimate direction of cryptocurrency systems is towards energy efficient systems of value and transaction, but this goal tends to lead towards a spectrum of trusted/delegated behavior where proof is not a hard requirement. Much of the argument rests on trust costing as much as work, and I don't buy that. It defies what technologies do: let you leverage effort in a particular direction and get a resulting overall productivity benefit.
- sctb 9y ago
  Thanks, updated!
derefr 9y ago
You know, the problem I have with Proof of Work isn't that it costs in electricity—it's that the Malthusian race-to-the-bottom of mining efficiency has completely destroyed the computer hardware market (for regular consumers.) It's to the point that GPU manufacturers are trying to make classes of cards that only work with games, so that consumers will have something to buy that's actually in stock.
- sandGorgon 9y ago
  This can be fixed - e.g. cryptonote used in monero, reduces the advantage of using GPU significantly
  - mythrwy 9y ago
    GPUs are still much better than CPUs for cryptonote though. In both hashrate vs intial cost and hashrate vs power consumption.
- panarky 9y ago
  > so that consumers will have something to buy So that they can price-discriminate by raising prices for mining and machine learning.
- lazyjones 9y ago
  That's a bit of an exaggeration, no? The high-end graphics card market isn't that big and consumers (as in "not PC games fanatics") have plenty of low-end cards to choose from that perfectly suit their need.
  - TomVDB 9y ago
    The lowest practical gaming GPU from Nvidia is the GTX 1050. Its launch MSRP was $110. Today, they are either sold out, or available for $160 or more. GTX 1060 6GB: launch MSRP was $250. Today it's either of stock or selling for $350. It's no different for AMD and for higher end GPUs.
- neilwilson 9y ago
Zenbit_UX 9y ago
I believe this is the important part of his argument: "If any cryptosystem is to periodically release coins, without immediately creating an incentive to “waste” an amount equal to the value of those coins, the cryptosystem is going to have to release the coins in a manner which is totally independent of all possible human activities." And he's absolutely right. When you break it down all cryptos need to waste an amount of resources equal to the value produced by the coins. In bitcoin it's mining equipment and electricity but there's another coin which is setup to use these resources more efficiently than BTC or ETH. EOS is releasing as a dPoS blockchain which converts the energy the 'miners' (block producers) use in a way that's beneficial for the users (server and network resources). It still expends resources, but does so in a non wasteful manner.
- colordrops 9y ago
  > EOS is releasing as a dPoS blockchain which converts the energy the 'miners' (block producers) use in a way that's beneficial for the users (server and network resources). It still expends resources, but does so in a non wasteful manner. And how exactly does it do that?
  - Zenbit_UX 9y ago
    21 block producers are acting as the hosts of the network. They build, maintain and pay all server costs for all time. If a BP fails to do his or her job, they're replaced by vote. In return they're entitled to be paid from network inflation. A rate which is agreed on by vote and divide up amongst the 21. The users receive a decentralized network, free of any costs to transact (no fees) and infinitely scalable.
    - colordrops 9y ago
      Sounds like an oligarchy rather than a decentralized system.
      - Zenbit_UX 9y ago
        You would think so but in fact it's proveably more decentralized than any current crypto. The arms race in crypto mining has led to an impossibility of solo-mining. Miners now join a pool or will never see a dime for their efforts. Overtime smaller pools dwindle and merge or die out until only a few survive. Believe it or not bitcoin has less than 10 pools controlling the network - which is highly concerning due to a possibility of a 51% attack and ethereum is no different.

118 points by lalaland1125 9y ago

gefh 9y ago

Well, fiat currency seems cheaper than PoW, even accounting for the cost of enforcement.

dullgiulio 9y ago
You mean paying for police forces is cheaper than PoW? I would hope not, but it doesn't matter. We need police forces even if we use cryptocurrencies exclusively, or you can just point a gun at someone to get their private key.
neilwilson 9y ago
Fiat currency is just a paper/electronic record of a promise. Because money is a promise, not a commodity. There will always be promises, because that is how humans trade: "Here's a pig, pay me back a pig's worth sometime". There you go - you just created money.

meri_dian 9y ago

"First, the argument is ridiculous because Bitcoin is already doing something useful for society (mining wouldn’t be profitable if it wasn’t)." Errrr, no. That's not how things work. Mining is profitable because it produces bitcoins which are valuable. Whether they are valuable because they are useful to society or because of some other reason is unclear.

Fnoord 9y ago
What you quote I also wanted to quote. It appears to be a fallacy, though I'm unable to pinpoint which one it is.
- meheleventyone 9y ago
  I’m pretty sure the quoted piece is ‘jumping to conclusions’ by labelling all profit making activities as useful to society. Basically the logic is very straightforward but the premise is faulty due to bias.
  - cornholio 9y ago
    I would also point out the circular logic: - distributed payment systems are valuable to society (true for our discussion) - POW is the only way to implement them (his overarching conclusion, that may or not be true) => Therefore, POW is not wasted, but a legitimate cost of such systems.
  - viraptor 9y ago
    It's the first time I think this description of extreme capitalism really fits: "See where this line meets that line? That's why these people have to starve." It's value for value's sake. It's the numbers that matter. It's the pure, isolated economy. Anything external doesn't matter and we can write a long analysis that ignores everything outside of this supposedly closed system.
omarforgotpwd 9y ago
They have value because they can be exchanged with others (who will probably value them according to the market price) and because they are difficult and expensive to make. Just like dollars or any other currency. But what he's saying is true, if Bitcoin did not perform any function it would have very little market value. So in a way the market value is an expression of the fact that people are finding it useful for something.
- dullgiulio 9y ago
  They do. For the overwhelming majority, this something is gambling. Whether that's useful for society (especially, decentralized gambling) is open for debate.
  - omarforgotpwd 9y ago
    Gamling and speculation are certainly use cases. They're not the only use cases. Money laundering, drug sales, protecting assets against seizure, political dissent... basically anything where the Government / financial system has shut you out from the market. I say "useful" only in the sense that it clearly has uses. Even if you don't believe these activities are beneficial to society, you can still concede that they are useful in that people are using them.

RobLach 9y ago

Having a state control a currency seems to be.

lwansbrough 9y ago

I think a implicit-trust powered blockchain is provably cheaper, provided you can guarantee trust for a sufficient amount of time. One such example I can find is Luckychain[0] which is where I'd start if I was going to attempt something like this. Intel SGX is the closest thing we have to a legitimate system in which we can place trust in the client. That being said, it requires trusting the signer, Intel. And we have to trust that it can't be cracked even with government-level capability, for the duration of the network's lifetime. I wonder if you could somehow move the job of signing onto the blockchain itself, so it becomes self-trusting and autonomous. [0]https://github.com/luckychain/lucky https://github.com/luckychain/lucky

Nomentatus 9y ago

Periodic release is the problem; I'm tempted to suggest that what's needed is a currency consisting of a set number of coins all released at one moment by a government or large corporation or institution but not thereafter controlled by said entity. A minor variation would have that entity retain ownership of most coins - which are released and in its wallet - to spend over time. Let's say, a United Way issued coin 10% of which was spent (auctioned for contributions in dollars) each year for ten years. After which point, the coin would be free of any connection to the United Way. But there has to be a small charge, in work, to keep your coins valid in order to maintain the blockchain/shared ledger. Weirdly, this has sorta been tried with a real currency, Alberta (Canada)'s "Velocity Dollar." It was ruled illegal before being fully put to the test, but since it could be used to pay taxes to the government, it would likely have worked, at least as a supplementary currency.

dlubarov 9y ago

The idea that marginal costs necessarily approach marginal revenues is plain wrong. The Ethereum wiki [1] says it best: > It's not enough to simply say that marginal cost approaches marginal revenue; one must also posit a plausible mechanism by which someone can actually expend that cost. For example, if tomorrow I announce that every day from then on I will give $100 to a randomly selected one of a given list of ten people (using my laptop's /dev/urandom as randomness), then there is simply no way for anyone to send $99 to try to get at that randomness. Either they are not in the list of ten, in which case they have no chance no matter what they do, or they are in the list of ten, in which case they don't have any reasonable way to manipulate my randomness so they're stuck with getting the expected-value $10 per day. The author here suggests that grinding attacks could be that plausible mechanism, but in a PoS system with a minimum account age, grinding attacks depend on being able to predict the state of the blockchain's entropy after that minimum age has passed. See [2] for some ideas about how entropy can be generated. Keep in mind that grinding attacks aren't free due transaction fees, so an attacker needs a certain degree of confidence that an entropy state will occur in order for a grinding attack to have a positive expected value; they can't just create a huge number accounts to cover all the possible states. In a well-designed system, the minimum account age and minimum transaction fee will be chosen such that all grinding attacks have negative expected value. [1] https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ [2] https://vitalik.ca/files/randomness.html https://vitalik.ca/files/randomness.html

zby 9y ago
The quoted text does not support your thesis - come on! It admits that C=R might be true - but argues that this is not enough.
- dlubarov 9y ago
  I see how you could read it that way based on the first half-sentence, but if you read the rest, it's saying that C=R is not always true.
middayc 9y ago
> then there is simply no way for anyone to send $99 to try to get at that randomnes can't I send one of the 10 people $99 today, and he pays me out in 10 days? Can't that person rent the fact he/she is on the list of 10 out. I am new to economic terms, but it seems your example even better shows his MC_rent + MC_nonrent = MR. Where he says in p2p systems MC_rent should be 0, because it's exclusionary. Again .. your example's main feature is that it excludes all but 10 people.

zby 9y ago

This is an interesting argument - but it is based on the assumption that with the same money you buy the same security independently of how that security is implemented. That does not seem to be true. There is already an update that article: http://www.truthcoin.info/blog/pos-still-pointless/ http://www.truthcoin.info/blog/pos-still-pointless/ which partially takes into account the critisism. And here is my reply to it: https://medium.com/@zby/proof-of-stake-can-be-cheaper-than-proof-of-work-da14223a965 https://medium.com/@zby/proof-of-stake-can-be-cheaper-than-p...

SrslyJosh 9y ago

Nothing says credibility like TRUTH COIN DOT INFO.

jagger27 9y ago

(2015)

flyGuyOnTheSly 9y ago
Yea... when the author started complaining about Peercoin and that somehow being related to what Ethereum is working on today... he lost all credibility with myself at least.
lalaland1125 9y ago
As far as I can tell, almost all of the arguments in this piece are still valid. Is there any recent work which argues that it is possible to have something cheaper than proof of work?
- rspeer 9y ago
  Not using cryptocurrency is cheaper than proof of work.
- annywhey 9y ago
  The article is based around bundling together a lot of small points and backing it up with shaky analogies to economic theory(e.g. an undergraduate course would probably focus on utility instead of rent). It's framed in a way that I would consider more persuasive than academic. It has a general point, in that the ultimate direction of cryptocurrency systems is towards energy efficient systems of value and transaction, but this goal tends to lead towards a spectrum of trusted/delegated behavior where proof is not a hard requirement. Much of the argument rests on trust costing as much as work, and I don't buy that. It defies what technologies do: let you leverage effort in a particular direction and get a resulting overall productivity benefit.
sctb 9y ago
Thanks, updated!

derefr 9y ago

You know, the problem I have with Proof of Work isn't that it costs in electricity—it's that the Malthusian race-to-the-bottom of mining efficiency has completely destroyed the computer hardware market (for regular consumers.) It's to the point that GPU manufacturers are trying to make classes of cards that only work with games, so that consumers will have something to buy that's actually in stock.

sandGorgon 9y ago
This can be fixed - e.g. cryptonote used in monero, reduces the advantage of using GPU significantly
- mythrwy 9y ago
  GPUs are still much better than CPUs for cryptonote though. In both hashrate vs intial cost and hashrate vs power consumption.
panarky 9y ago
> so that consumers will have something to buy So that they can price-discriminate by raising prices for mining and machine learning.
lazyjones 9y ago
That's a bit of an exaggeration, no? The high-end graphics card market isn't that big and consumers (as in "not PC games fanatics") have plenty of low-end cards to choose from that perfectly suit their need.
- TomVDB 9y ago
  The lowest practical gaming GPU from Nvidia is the GTX 1050. Its launch MSRP was $110. Today, they are either sold out, or available for $160 or more. GTX 1060 6GB: launch MSRP was $250. Today it's either of stock or selling for $350. It's no different for AMD and for higher end GPUs.
neilwilson 9y ago

Zenbit_UX 9y ago

I believe this is the important part of his argument: "If any cryptosystem is to periodically release coins, without immediately creating an incentive to “waste” an amount equal to the value of those coins, the cryptosystem is going to have to release the coins in a manner which is totally independent of all possible human activities." And he's absolutely right. When you break it down all cryptos need to waste an amount of resources equal to the value produced by the coins. In bitcoin it's mining equipment and electricity but there's another coin which is setup to use these resources more efficiently than BTC or ETH. EOS is releasing as a dPoS blockchain which converts the energy the 'miners' (block producers) use in a way that's beneficial for the users (server and network resources). It still expends resources, but does so in a non wasteful manner.

colordrops 9y ago
> EOS is releasing as a dPoS blockchain which converts the energy the 'miners' (block producers) use in a way that's beneficial for the users (server and network resources). It still expends resources, but does so in a non wasteful manner. And how exactly does it do that?
- Zenbit_UX 9y ago
  21 block producers are acting as the hosts of the network. They build, maintain and pay all server costs for all time. If a BP fails to do his or her job, they're replaced by vote. In return they're entitled to be paid from network inflation. A rate which is agreed on by vote and divide up amongst the 21. The users receive a decentralized network, free of any costs to transact (no fees) and infinitely scalable.
  - colordrops 9y ago
    Sounds like an oligarchy rather than a decentralized system.
    - Zenbit_UX 9y ago
      You would think so but in fact it's proveably more decentralized than any current crypto. The arms race in crypto mining has led to an impossibility of solo-mining. Miners now join a pool or will never see a dime for their efforts. Overtime smaller pools dwindle and merge or die out until only a few survive. Believe it or not bitcoin has less than 10 pools controlling the network - which is highly concerning due to a possibility of a 51% attack and ethereum is no different.