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I'm mostly talking about governance. The biggest "users" and governance decision makers of any PoS protocol will be regulated financial institutions (e.g. Coinb

I'm mostly talking about governance. The biggest "users" and governance decision makers of any PoS protocol will be regulated financial institutions (e.g. Coinbase) operating on behalf of end users. In theory Joe Schmoe can be a staker from his garage, but in practice the only stakers that matter will be regulated custodians (full disclosure, I am the CEO of a regulated custodian) other than a handful of independent ETH whales (like yourself). Yes there will be a number of custodians "competing" with each other, but they will all largely operate under the same regulatory jurisdiction (or at least cooperating jurisdictions). If a PoS currency becomes mainstream, the Federal Reserve (because regulated banks will be the largest custodians) and Dept. of Treasury will have significant influence on governance debates. The big issue here is that governance decisions in PoW systems are split between miners (geographically distributed), custodians (largely US based) and other economic actors. In PoS systems only custodians will call the shots. That has very serious implications because custodians are regulated financial institutions with significant network effects, miners do not have this centralizing force. Lastly, to actually become a miner in a PoS system requires you to find or create a cheap source of energy and hardware and maintain this advantage in perpetuity. This is external to the system and can be done without paying off any existing Bitcoin actor. In a PoS system you, by definition, need to pay to play - you must purchase a sufficient stake of the currency from an existing insider if you want to have a seat at the table. It's the perfect insider game. Some may argue it aligns incentives, but it also centralizes control. These systems all have different tradeoffs. Maybe some people are ok with these tradeoffs for switching to PoS, but I'm not.

vbuterin 5y ago
How does this view of PoS governance explain how Ethereum protocol governance has operated in reality for the past five years? As far as I can tell, the power held by miners has been minimal; if miners had any significant power at all then the various issuance reductions and now EIP 1559 would not have been accepted nearly so smoothly. So when miners are replaced by PoS validators, the power that PoS validators will be inheriting is not that much... > Yes there will be a number of custodians "competing" with each other, but they will all largely operate under the same regulatory jurisdiction (or at least cooperating jurisdictions) Even if this is true (given all the decentralized staking pools coming out, and the still really large number of solo stakers, I really doubt it!), I don't see how that state of affairs would survive any attempt by governments to actually use their jurisdictional power. It's very easy to move stake around (or at least it will be very easy post-merge), so once a single pool does anything disagreeable people can just move their ETH to other pools. And staking infrastructure can live in any country; there aren't even constraints around needing to have cheap electricity there. > This is external to the system and can be done without paying off any existing Bitcoin actor I've heard this argument many times, but.... why does that even matter? Making a PoW farm requires paying off a hardware provider. Hardware providers are far more centralized than cryptocurrency hodlers, of which there are millions and you just need to find one willing to sell to you. "I want to buy coins but the existing hodlers are all colluding to not let me" is not a problem that anyone in the cryptocurrency space actually worries about in real life. Specialized hardware manufacturers, on the other hand, are few enough that such a thing is at least actually plausible....
- staplers 5y ago
  Benevolent dictators can make their dictatorship feel very democratic if they aren't abusing their power. The problem is that benevolence eventually erodes when conflicted interests come to head. Then everyone sees how truly democratic/free something is.
- jude- 5y ago
  > "I want to buy coins but the existing hodlers are all colluding to not let me" This isn't the problem. The problem is, "I want to buy enough coins to stake without being diluted but existing hodlers are all colluding to not let me by charging me a price equal to the total expected returns the staked coins would produce" The emphasized parts are where PoS has trouble. The market forces governing PoS incentivize hodlers rich enough to stake to never allow more stakers to arise -- the act of selling ETH is now also the act of giving up future revenue from keeping it and staking it.
  - eruleman 5y ago
    How is selling ETH different from selling a stock that has dividends?
    - jude- 5y ago
      Two ways: * The "stock" (token) is constantly spitting * The "stock" grants the bearer both a continuous dividend as well as a vote on deciding what "work" (transactions) the "company" (chain) takes on. Is there a real-world stock with these properties?
- leishman 5y ago
  > How does this view of PoS governance explain how Ethereum protocol governance has operated in reality for the past five years? As far as I can tell, the power held by miners has been minimal. Miners have no power because ETH governance is deliberately centralized away from them. 1. Ethereum has a founder (you), who can effectively unilaterally change the protocol. You've been clear for a long time that ETH miners are temporary participants in this project. 2. Very few ETH owners run their own node or participate in actively validating and enforcing governance decisions, so you and the dev team effectively call the shots. Miners have no choice but to follow whatever protocol update Infura and the few other node-as-a-service companies decide to support. > I don't see how that state of affairs would survive any attempt by governments to actually use their jurisdictional power Since the largest holders will be regulated legal entities, it will be quite trivial for governments to do this. Also my understanding is that ETH staking is not delegated, so moving funds is not trivial for institutions since this is highly regulated activity. > so once a single pool does anything disagreeable people can just move their ETH to other pools Deposits at financial institutions are sticky. People and institutions generally aren't going to withdraw their ETH from Coinbase because of some governance debate. > I've heard this argument many times, but.... why does that even matter? Because it's a decentralizing force. To build and pay for a mining operation you need to sell off your Bitcoin to (often new) buyers. A larger mining operation has larger costs and is constantly at the mercy of the energy and hardware markets. In comparison, all stakers, regardless of size, have effectively the same small fixed cost. A big institutional staker will continue to grow their wealth with no increase in cost and no competitive pressures. They just sit on their $$ and keep collecting more in perpetuity.

vbuterin 5y ago

How does this view of PoS governance explain how Ethereum protocol governance has operated in reality for the past five years? As far as I can tell, the power held by miners has been minimal; if miners had any significant power at all then the various issuance reductions and now EIP 1559 would not have been accepted nearly so smoothly. So when miners are replaced by PoS validators, the power that PoS validators will be inheriting is not that much... > Yes there will be a number of custodians "competing" with each other, but they will all largely operate under the same regulatory jurisdiction (or at least cooperating jurisdictions) Even if this is true (given all the decentralized staking pools coming out, and the still really large number of solo stakers, I really doubt it!), I don't see how that state of affairs would survive any attempt by governments to actually use their jurisdictional power. It's very easy to move stake around (or at least it will be very easy post-merge), so once a single pool does anything disagreeable people can just move their ETH to other pools. And staking infrastructure can live in any country; there aren't even constraints around needing to have cheap electricity there. > This is external to the system and can be done without paying off any existing Bitcoin actor I've heard this argument many times, but.... why does that even matter? Making a PoW farm requires paying off a hardware provider. Hardware providers are far more centralized than cryptocurrency hodlers, of which there are millions and you just need to find one willing to sell to you. "I want to buy coins but the existing hodlers are all colluding to not let me" is not a problem that anyone in the cryptocurrency space actually worries about in real life. Specialized hardware manufacturers, on the other hand, are few enough that such a thing is at least actually plausible....

staplers 5y ago
Benevolent dictators can make their dictatorship feel very democratic if they aren't abusing their power. The problem is that benevolence eventually erodes when conflicted interests come to head. Then everyone sees how truly democratic/free something is.
jude- 5y ago
> "I want to buy coins but the existing hodlers are all colluding to not let me" This isn't the problem. The problem is, "I want to buy enough coins to stake without being diluted but existing hodlers are all colluding to not let me by charging me a price equal to the total expected returns the staked coins would produce" The emphasized parts are where PoS has trouble. The market forces governing PoS incentivize hodlers rich enough to stake to never allow more stakers to arise -- the act of selling ETH is now also the act of giving up future revenue from keeping it and staking it.
- eruleman 5y ago
  How is selling ETH different from selling a stock that has dividends?
  - jude- 5y ago
    Two ways: * The "stock" (token) is constantly spitting * The "stock" grants the bearer both a continuous dividend as well as a vote on deciding what "work" (transactions) the "company" (chain) takes on. Is there a real-world stock with these properties?
leishman 5y ago
> How does this view of PoS governance explain how Ethereum protocol governance has operated in reality for the past five years? As far as I can tell, the power held by miners has been minimal. Miners have no power because ETH governance is deliberately centralized away from them. 1. Ethereum has a founder (you), who can effectively unilaterally change the protocol. You've been clear for a long time that ETH miners are temporary participants in this project. 2. Very few ETH owners run their own node or participate in actively validating and enforcing governance decisions, so you and the dev team effectively call the shots. Miners have no choice but to follow whatever protocol update Infura and the few other node-as-a-service companies decide to support. > I don't see how that state of affairs would survive any attempt by governments to actually use their jurisdictional power Since the largest holders will be regulated legal entities, it will be quite trivial for governments to do this. Also my understanding is that ETH staking is not delegated, so moving funds is not trivial for institutions since this is highly regulated activity. > so once a single pool does anything disagreeable people can just move their ETH to other pools Deposits at financial institutions are sticky. People and institutions generally aren't going to withdraw their ETH from Coinbase because of some governance debate. > I've heard this argument many times, but.... why does that even matter? Because it's a decentralizing force. To build and pay for a mining operation you need to sell off your Bitcoin to (often new) buyers. A larger mining operation has larger costs and is constantly at the mercy of the energy and hardware markets. In comparison, all stakers, regardless of size, have effectively the same small fixed cost. A big institutional staker will continue to grow their wealth with no increase in cost and no competitive pressures. They just sit on their $$ and keep collecting more in perpetuity.