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PoW is open-membership, because the means of coin production are not tied to owning coins already. All you need to contribute is computing power, and you can st

by jude- 6y ago

PoW is open-membership, because the means of coin production are not tied to owning coins already. All you need to contribute is computing power, and you can start earning coins at a profit. PoS is closed-membership with a veneer of open-membership, because the means of coin production are tied to owning a coin already. What this means in practice is that no rational coin-owner is going to sell you coins at a fast enough rate that you'll be able to increase your means of coin production. Put another way, the price you'd pay for the increased means of coin production will meet or exceed the total expected revenue created by staking those coins over their lifetime. So unless you know something the seller doesn't, you won't be able to profit by buying your way into staking. Overall, this makes PoS less resilient and less egalitarian than PoW. While both require an up-front capital expenditure, the expenditure for PoS coin-production will meet or exceed the total expected revenue of those coins at the point of sale. So, the system is only as resilient as the nodes run by the people who bought in initially, and the only way to join later is to buy coins from people who want to exit (which would only be viable if these folks believed the coins are worth less than what you're buying them for, which doesn't bode well for you as the buyer).

RhodoGSA 6y ago
Thanks for this little tangent, it was pretty informative. what's your opinions on nominated proof of stake?
jacoblambda 6y ago
One important difference in favour of PoS that isn't brought up often is the financial cost to pull off an attack. Pulling off an attack in most PoS protocols results in coin slashing for the attacker ("deletion" of coins used in the attack) and on top of that can (and likely will) result in coin devaluation as well. This makes a successful attack against a PoS system very very expensive. The resource is spent and actually burned. With PoW however the GPUs or ASICs don't disappear or lose value after the attack (caveat that the ASICs can lose value if networks switch away from the algorithm it is built for). The hardware can be used to attack "competitor" networks or used again in another attack against the network or other networks in the future. In this sense, I suspect that PoS networks are able to properly recover from successful attacks far easier as well as dissuade attacks from the offset.
- jude- 6y ago
  It's far easier to break a PoS chain -- you simply knock the coin-holding nodes offline. Knock enough offline, and you can no longer reach quorum. If offline nodes' coins get slashed in order to reach quorum and restart block production, and the system permits forking, then why would offline nodes rejoin the original fork? They're incentivized to only consider forks where they're not slashed. If the system does not permit forking, then the system breaks once the attackers (1) stake a nominal amount of coins, and (2) knock enough other nodes offline such that they are the majority staker.
  - jacoblambda 6y ago
    This isn't really an attack unique to Proof of Stake. If a node goes offline they can lose rewards or even in rare cases have their coins slashed to some extent but that isn't inherent to a Proof of Stake overall. A decent number of Proof of Stake systems instead place reward penalties on pools/nodes that go offline. The idea being that it is a penalty for not maintaining sufficient infrastructure while also not being so severe that it could be leveraged in such an attack. Most PoS algorithms I've seen instead reserve stake slashing as a penalty for malicious behaviour. Going offline isn't by any means inherently malicious. There are however plenty of actively malicious actions that can be detected and reacted against. Often for the more severe penalties it will require some level of community involvement in the recovery stage to limit opportunities for abuse. Additionally, it shouldn't be easy to take a block producer offline and Stake Pool(or node) Operators should be preparing for these types of attacks. I've been watching some of the work being done in the Cardano Stake Pool Operator community and the various SPO guilds have decently sophisticated architectures. "Nodes"/"Pools" are broken up into Relays, Producers, and sometimes additionally Key Generators. Key Generators produce the periodically expiring KES keys and pass them to the Producers on a schedule (to minimise potential attack surfaces). The Producers actually engage in the consensus using the keys provided by the key generators and communicate through the relays. The Relays handle the throughput and communication. This allows the producers (and by extension the key generators if used) to be largely shielded from the open net. This also allows producers and relays to have a certain amount of redundancy/failover. An architecture like that may cost more (and eat into rewards a bit more) however they are far more difficult to DDoS or compromise. Since the barrier for the hardware is so low, a 1x2x2 or 1x2x3 (keygen x producer x relay) architecture can still be more than profitable (retaining 25% to 75% of the SPO rewards as profit). Additionally this has the advantage that various other income streams can be integrated in (state channel operation, compute nodes, storage nodes, etc) over time and the operation can be scaled up without compromising security or requiring a significant re-architecture. Proof of Stake can be just as secure as Proof of Work but it requires that the incentives be structured properly and sufficiently hedged against potential risks.
sibeliuss 6y ago
It's worth investigating Algorand's Pure Proof-of-Stake model and seeing how it compares to other POS implementations: https://algorand.foundation/algorand-protocol/about-algorand-protocol/pure-proof-of-stake https://algorand.foundation/algorand-protocol/about-algorand...
- jude- 6y ago
  If the means of coin production require owning coins, you have these problems that PoW does not have. Definitely true for Algorand.
  - sibeliuss 6y ago
    Owning coins is a means of validating the network and appending to the blockchain, not producing new coins.
    - jude- 6y ago
      Try reading the paper: https://people.csail.mit.edu/nickolai/papers/gilad-algorand-eprint.pdf https://people.csail.mit.edu/nickolai/papers/gilad-algorand-... You have to own coins to produce blocks.
      - sibeliuss 6y ago
        > If the means of coin production require owning coins, you have these problems that PoW does not have Producing blocks != coin production
        jude- 6y ago
        If you're producing blocks, you're getting paid (otherwise what's the point). If the probability you get picked to produce a block is proportional to how many coins you own, then you're getting paid proportional to how many coins you own. I don't care for Algorand's shell game of trying to say that all tokens have been minted already, and are just being distributed. If it's the case that nodes who stake more coins are getting paid more coins, then all of my analysis holds.
melolife 6y ago
Open membership is arguably a worse problem than stake requirements, as PoW participants do not have a vested interest in preserving the integrity of the chain. Ethereum 2 actually throttles validator entries and exits for exactly this reason. As an example, any sufficiently powerful entity can temporarily and affordably commandeer computational resources with the intention of disrupting the chain. Under PoS doing so would devalue your (presumably enormous) stake, so participants are at least incentivized to act in the interest of the chain.
- jude- 6y ago
  Open membership means that the chain stays alive as long as anyone in the world wants it to. This isn't true for PoS chains -- you must to acquire tokens to keep the chain alive. > As an example, any sufficiently powerful entity can temporarily and affordably commandeer computational resources with the intention of disrupting the chain. A sufficiently powerful entity can DoS enough staked nodes that quorum can't be reached, and thereby force a PoS chain offline indefinitely for far less energy. If they're clever, they'll buy some PoS coins first, so that once the offline nodes all get slashed, they'll be the majority staker.
dlubarov 6y ago
It seems like your contention is that PoS coins are priced based on discounted cash flow, correct? I think that's a reasonable model, but it's hardly unique to PoS coins, and it doesn't really seem problematic. > the system is only as resilient as the nodes run by the people who bought in initially This point applies to any assets that generate cash flow, like stocks, yet they seem to have plenty of trading volume. And looking at some numbers on CoinMarketCap, it doesn't seem like PoS coins have lower trading volume than PoW coins. As one example, XTZ seems to have ~double BTC's turnover in the past 24h. > these folks believed the coins are worth less than what you're buying them for, which doesn't bode well for you as the buyer This could be said about most assets, even ones without cash flow like PoW coins. In practice there are other reasons for selling, like wanting to offset gains/losses for tax purposes, or wanting to buy food.
- jude- 6y ago
  > It seems like your contention is that PoS coins are priced based on discounted cash flow, correct? I think that's a reasonable model, but it's hardly unique to PoS coins, and it doesn't really seem problematic. It's very problematic if the system's liveness is tied to owning a coin. If I can knock PoS nodes offline, I can not only cause a quorum failure, but also I can cause the offline nodes's coins to get slashed (which is usually how PoS chains deal with this problem). Moreover, there's no recovery from this -- the temporarily-offline nodes are forever slashed, even if they come online later. (EDIT: I'm not limited to knocking nodes offline -- if I can commandeer them through a zero-day, the effect is the same: I make your nodes commit a slashable offense). Contrast this to PoW, where even if you manage to knock a majority of miners offline, you ultimately have to keep them offline in order to prevent them from later generating and broadcasting a better chain than the one you want to exist. Even if you can physically destroy the majority of miners, the chain still lives on, and new miners can be built and brought online elsewhere. > This point applies to any assets that generate cash flow, like stocks, yet they seem to have plenty of trading volume Trading volume is easily faked in crypto-land -- a whale just sends coins to themselves. I'd like to see some hard evidence that the volumes are not from wash-trading. Also, this isn't relevant at all to the system's resilience. > In practice there are other reasons for selling, like wanting to offset gains/losses for tax purposes, or wanting to buy food. I didn't say you don't sell coins. I said you don't sell enough of them that the buyer can use them to increase their rate of coin production.
Paradigma11 6y ago
Staking rewards for new block generation is inflationary, so you are just not losing value by staking. Additional value is generated by fees and store of value. With PoW coin you are constantly devaluing your share of the blockchain by paying some third parties operating giant gpu farms and hydroelectric dams.
- jude- 6y ago
  > block generation is inflationary > store of value. I stopped reading at this point.
  - Paradigma11 6y ago
    Good to know.

by jude- 6y ago

RhodoGSA 6y ago

Thanks for this little tangent, it was pretty informative. what's your opinions on nominated proof of stake?

jacoblambda 6y ago

One important difference in favour of PoS that isn't brought up often is the financial cost to pull off an attack. Pulling off an attack in most PoS protocols results in coin slashing for the attacker ("deletion" of coins used in the attack) and on top of that can (and likely will) result in coin devaluation as well. This makes a successful attack against a PoS system very very expensive. The resource is spent and actually burned. With PoW however the GPUs or ASICs don't disappear or lose value after the attack (caveat that the ASICs can lose value if networks switch away from the algorithm it is built for). The hardware can be used to attack "competitor" networks or used again in another attack against the network or other networks in the future. In this sense, I suspect that PoS networks are able to properly recover from successful attacks far easier as well as dissuade attacks from the offset.

jude- 6y ago
It's far easier to break a PoS chain -- you simply knock the coin-holding nodes offline. Knock enough offline, and you can no longer reach quorum. If offline nodes' coins get slashed in order to reach quorum and restart block production, and the system permits forking, then why would offline nodes rejoin the original fork? They're incentivized to only consider forks where they're not slashed. If the system does not permit forking, then the system breaks once the attackers (1) stake a nominal amount of coins, and (2) knock enough other nodes offline such that they are the majority staker.
- jacoblambda 6y ago
  This isn't really an attack unique to Proof of Stake. If a node goes offline they can lose rewards or even in rare cases have their coins slashed to some extent but that isn't inherent to a Proof of Stake overall. A decent number of Proof of Stake systems instead place reward penalties on pools/nodes that go offline. The idea being that it is a penalty for not maintaining sufficient infrastructure while also not being so severe that it could be leveraged in such an attack. Most PoS algorithms I've seen instead reserve stake slashing as a penalty for malicious behaviour. Going offline isn't by any means inherently malicious. There are however plenty of actively malicious actions that can be detected and reacted against. Often for the more severe penalties it will require some level of community involvement in the recovery stage to limit opportunities for abuse. Additionally, it shouldn't be easy to take a block producer offline and Stake Pool(or node) Operators should be preparing for these types of attacks. I've been watching some of the work being done in the Cardano Stake Pool Operator community and the various SPO guilds have decently sophisticated architectures. "Nodes"/"Pools" are broken up into Relays, Producers, and sometimes additionally Key Generators. Key Generators produce the periodically expiring KES keys and pass them to the Producers on a schedule (to minimise potential attack surfaces). The Producers actually engage in the consensus using the keys provided by the key generators and communicate through the relays. The Relays handle the throughput and communication. This allows the producers (and by extension the key generators if used) to be largely shielded from the open net. This also allows producers and relays to have a certain amount of redundancy/failover. An architecture like that may cost more (and eat into rewards a bit more) however they are far more difficult to DDoS or compromise. Since the barrier for the hardware is so low, a 1x2x2 or 1x2x3 (keygen x producer x relay) architecture can still be more than profitable (retaining 25% to 75% of the SPO rewards as profit). Additionally this has the advantage that various other income streams can be integrated in (state channel operation, compute nodes, storage nodes, etc) over time and the operation can be scaled up without compromising security or requiring a significant re-architecture. Proof of Stake can be just as secure as Proof of Work but it requires that the incentives be structured properly and sufficiently hedged against potential risks.

sibeliuss 6y ago

It's worth investigating Algorand's Pure Proof-of-Stake model and seeing how it compares to other POS implementations: https://algorand.foundation/algorand-protocol/about-algorand-protocol/pure-proof-of-stake https://algorand.foundation/algorand-protocol/about-algorand...

jude- 6y ago
If the means of coin production require owning coins, you have these problems that PoW does not have. Definitely true for Algorand.
- sibeliuss 6y ago
  Owning coins is a means of validating the network and appending to the blockchain, not producing new coins.
  - jude- 6y ago
    Try reading the paper: https://people.csail.mit.edu/nickolai/papers/gilad-algorand-eprint.pdf https://people.csail.mit.edu/nickolai/papers/gilad-algorand-... You have to own coins to produce blocks.
    - sibeliuss 6y ago
      > If the means of coin production require owning coins, you have these problems that PoW does not have Producing blocks != coin production
      - jude- 6y ago
        If you're producing blocks, you're getting paid (otherwise what's the point). If the probability you get picked to produce a block is proportional to how many coins you own, then you're getting paid proportional to how many coins you own. I don't care for Algorand's shell game of trying to say that all tokens have been minted already, and are just being distributed. If it's the case that nodes who stake more coins are getting paid more coins, then all of my analysis holds.

melolife 6y ago

Open membership is arguably a worse problem than stake requirements, as PoW participants do not have a vested interest in preserving the integrity of the chain. Ethereum 2 actually throttles validator entries and exits for exactly this reason. As an example, any sufficiently powerful entity can temporarily and affordably commandeer computational resources with the intention of disrupting the chain. Under PoS doing so would devalue your (presumably enormous) stake, so participants are at least incentivized to act in the interest of the chain.

jude- 6y ago
Open membership means that the chain stays alive as long as anyone in the world wants it to. This isn't true for PoS chains -- you must to acquire tokens to keep the chain alive. > As an example, any sufficiently powerful entity can temporarily and affordably commandeer computational resources with the intention of disrupting the chain. A sufficiently powerful entity can DoS enough staked nodes that quorum can't be reached, and thereby force a PoS chain offline indefinitely for far less energy. If they're clever, they'll buy some PoS coins first, so that once the offline nodes all get slashed, they'll be the majority staker.

dlubarov 6y ago

It seems like your contention is that PoS coins are priced based on discounted cash flow, correct? I think that's a reasonable model, but it's hardly unique to PoS coins, and it doesn't really seem problematic. > the system is only as resilient as the nodes run by the people who bought in initially This point applies to any assets that generate cash flow, like stocks, yet they seem to have plenty of trading volume. And looking at some numbers on CoinMarketCap, it doesn't seem like PoS coins have lower trading volume than PoW coins. As one example, XTZ seems to have ~double BTC's turnover in the past 24h. > these folks believed the coins are worth less than what you're buying them for, which doesn't bode well for you as the buyer This could be said about most assets, even ones without cash flow like PoW coins. In practice there are other reasons for selling, like wanting to offset gains/losses for tax purposes, or wanting to buy food.

jude- 6y ago
> It seems like your contention is that PoS coins are priced based on discounted cash flow, correct? I think that's a reasonable model, but it's hardly unique to PoS coins, and it doesn't really seem problematic. It's very problematic if the system's liveness is tied to owning a coin. If I can knock PoS nodes offline, I can not only cause a quorum failure, but also I can cause the offline nodes's coins to get slashed (which is usually how PoS chains deal with this problem). Moreover, there's no recovery from this -- the temporarily-offline nodes are forever slashed, even if they come online later. (EDIT: I'm not limited to knocking nodes offline -- if I can commandeer them through a zero-day, the effect is the same: I make your nodes commit a slashable offense). Contrast this to PoW, where even if you manage to knock a majority of miners offline, you ultimately have to keep them offline in order to prevent them from later generating and broadcasting a better chain than the one you want to exist. Even if you can physically destroy the majority of miners, the chain still lives on, and new miners can be built and brought online elsewhere. > This point applies to any assets that generate cash flow, like stocks, yet they seem to have plenty of trading volume Trading volume is easily faked in crypto-land -- a whale just sends coins to themselves. I'd like to see some hard evidence that the volumes are not from wash-trading. Also, this isn't relevant at all to the system's resilience. > In practice there are other reasons for selling, like wanting to offset gains/losses for tax purposes, or wanting to buy food. I didn't say you don't sell coins. I said you don't sell enough of them that the buyer can use them to increase their rate of coin production.

Paradigma11 6y ago

Staking rewards for new block generation is inflationary, so you are just not losing value by staking. Additional value is generated by fees and store of value. With PoW coin you are constantly devaluing your share of the blockchain by paying some third parties operating giant gpu farms and hydroelectric dams.

jude- 6y ago
> block generation is inflationary > store of value. I stopped reading at this point.
- Paradigma11 6y ago
  Good to know.