5 ms·

Are the benefits of proof of work worth the additional cost over other consensus algorithms, to you?

by JamilD 5y ago

rawtxapp 5y ago
PoW keeps things fair, you have to spend money on hardware and energy or become irrelevant. In other consensus systems like PoS, whoever has the most capital controls pretty much everything and has 0 incentive to sell what they get since they aren't really spending any energy for their cryptographic signature. It literally says "rich gets richer" in the protocol which is fundamentally broken in my humble opinion.
- JamilD 5y ago
  Compute power requires money though, no? Whoever has the most capital now controls the BTC blockchain, which happens to be mostly miners in China. It’s a lot easier for me to stake ETH than to buy hundreds of GPUs. And my reward is linear with how much I stake or put down, whereas with economies of scale in mining the reward is more like quadratic. Seems to me that with PoS the rich get richer linearly, with PoW the rich get richer ~quadratically. If I spend 0.01% of what the Chinese miners spend on my mining setup, I’m not getting 0.01% of the rewards.
  - rawtxapp 5y ago
    The thing is, let's say you spend 100M$ on mining equipment today, that equipment is worth a lot less in a year from now and is worth practically nothing in 5+ years, so you can't just sit on it, you have to keep spending. Likewise with electricity, it's not free, you have to source it and spend money on it. So whatever Bitcoin reward you get barely covers your running cost + small profit margin. Imagine like you're running from a monster, you can't stop or you'll become irrelevant. Whereas with ETH, I can buy 100M$ worth of it, I'll get say 5% back which means I'm making 5M$ every year, thing is I don't have any pressure to sell it whereas the poorer stakers will have to sell to cover their cost of living or other reasons, so over time the % of my stake in eth grows. Things get even worse when you include custodians into the mix, exchanges will have much larger wallets and get much larger rewards which they may not share with the actual holders or keep a small % for themselves.
jerry1979 5y ago
The other consensus algorithms all follow the same consolidation logic of capitalism. Specifically, power consolidates year after year similar to banks, media companies, communication companies, etc. It looks to me like the PoS systems algorithmically codify this logic, and since the consolidation exists digitally, I would have a hard time coming up with a plan to break up the PoS oligopolies. The reason why the digital consolidation hurts people in the PoS system comes form the fact that consolidation of money in PoS directly relates to consolidation of actual voting power in those systems. PoW on the other hand will lead to consolidation around inexpensive energy: volcanoes in El Salvador, hydro in some northern countries, solar somewhere else, etc. However, those places will have some abstract voting power in the Bitcoin world, but exchanges, people, node operators, and businesses also have abstract voting power to balance against the cheap energy locations. I should mention that the upside of all of this is that we can now choose the option to have accessible digital banking around the world, and people who print money will have less of an impact on world affairs.
- megameter 5y ago
  I've gradually come around to the side of PoW being important as layer 1, because it's as close as we're likely to get to Lockean labor theory of property being directly manifest rather than built on a legal-deeds-and-titles national framework, and that has an immediate effect of building trust out of speculative value. PoW can be made more efficient along some axes, but not all of them. As such it puts every economy in a Red Queen's race to do things with available energy and computing power that are of more value than speculation. However, PoS has an important role as the layer for specific applications and markets, since it acts more like central banking with the tradeoffs of such.
  - randomhodler84 5y ago
    You got it. PoW is critical for layer 1. Ongoing capital expenditure requirement is critical to prevent ancestral oligarchies. One cannot retain censorship resistance or decentralization with oligarchies.

Are the benefits of proof of work worth the additional cost over other consensus algorithms, to you?

by JamilD 5y ago

Are the benefits of proof of work worth the additional cost over other consensus algorithms, to you?

PoW keeps things fair, you have to spend money on hardware and energy or become irrelevant. In other consensus systems like PoS, whoever has the most capital controls pretty much everything and has 0 incentive to sell what they get since they aren't really spending any energy for their cryptographic signature. It literally says "rich gets richer" in the protocol which is fundamentally broken in my humble opinion.

JamilD 5y ago
Compute power requires money though, no? Whoever has the most capital now controls the BTC blockchain, which happens to be mostly miners in China. It’s a lot easier for me to stake ETH than to buy hundreds of GPUs. And my reward is linear with how much I stake or put down, whereas with economies of scale in mining the reward is more like quadratic. Seems to me that with PoS the rich get richer linearly, with PoW the rich get richer ~quadratically. If I spend 0.01% of what the Chinese miners spend on my mining setup, I’m not getting 0.01% of the rewards.
- rawtxapp 5y ago
  The thing is, let's say you spend 100M$ on mining equipment today, that equipment is worth a lot less in a year from now and is worth practically nothing in 5+ years, so you can't just sit on it, you have to keep spending. Likewise with electricity, it's not free, you have to source it and spend money on it. So whatever Bitcoin reward you get barely covers your running cost + small profit margin. Imagine like you're running from a monster, you can't stop or you'll become irrelevant. Whereas with ETH, I can buy 100M$ worth of it, I'll get say 5% back which means I'm making 5M$ every year, thing is I don't have any pressure to sell it whereas the poorer stakers will have to sell to cover their cost of living or other reasons, so over time the % of my stake in eth grows. Things get even worse when you include custodians into the mix, exchanges will have much larger wallets and get much larger rewards which they may not share with the actual holders or keep a small % for themselves.

jerry1979 5y ago

The other consensus algorithms all follow the same consolidation logic of capitalism. Specifically, power consolidates year after year similar to banks, media companies, communication companies, etc. It looks to me like the PoS systems algorithmically codify this logic, and since the consolidation exists digitally, I would have a hard time coming up with a plan to break up the PoS oligopolies. The reason why the digital consolidation hurts people in the PoS system comes form the fact that consolidation of money in PoS directly relates to consolidation of actual voting power in those systems. PoW on the other hand will lead to consolidation around inexpensive energy: volcanoes in El Salvador, hydro in some northern countries, solar somewhere else, etc. However, those places will have some abstract voting power in the Bitcoin world, but exchanges, people, node operators, and businesses also have abstract voting power to balance against the cheap energy locations. I should mention that the upside of all of this is that we can now choose the option to have accessible digital banking around the world, and people who print money will have less of an impact on world affairs.

megameter 5y ago
I've gradually come around to the side of PoW being important as layer 1, because it's as close as we're likely to get to Lockean labor theory of property being directly manifest rather than built on a legal-deeds-and-titles national framework, and that has an immediate effect of building trust out of speculative value. PoW can be made more efficient along some axes, but not all of them. As such it puts every economy in a Red Queen's race to do things with available energy and computing power that are of more value than speculation. However, PoS has an important role as the layer for specific applications and markets, since it acts more like central banking with the tradeoffs of such.
- randomhodler84 5y ago
  You got it. PoW is critical for layer 1. Ongoing capital expenditure requirement is critical to prevent ancestral oligarchies. One cannot retain censorship resistance or decentralization with oligarchies.