
Nothing Is Cheaper Than Proof of Work (2015) - lalaland1125
http://www.truthcoin.info/blog/pow-cheapest?q=1
======
derefr
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.

~~~
mquander
How can this be? GPU manufacturers are unhappy that demand for their GPUs is
skyrocketing, so they are trying to make GPUs that are less in demand? That
makes zero sense to me.

Why would a GPU manufacturer prefer that an end user use their GPU for games
rather than cryptocurrency mining?

~~~
ben-schaaf
The GPU manufacturers aren't actually making that much more money AFAIK. They
apparently have a lot of contracts with suppliers that have fixed pricing.
Sure, demand is increasing, and the manufacturers are selling pretty much
every new card they make, but until they increase production they aren't
making that much more money. Increasing production takes a fair amount of time
and money, and with the volatility of the cryptocurrency market it seems like
a risky investment.

You can see the effects of this: Nvidia is selling their GPUs at close to MSRP
on their website with a set limit on the amount you can buy per customer. If
they're making bank on cryptocurrency mining why would they hurt their sales
by doing that? To me that move only makes sense if Nvidia wouldn't be making a
lot of money otherwise and highly valued their current gaming customers.

~~~
floil
Nvidia's gross margin is north of 60%. They want to sell GPUs. It seems more
likely that they're trying to segment the market so that they can charge
miners, gamers, and deep learning customers different prices; the per-customer
limits are a way of accomplishing this, since gamers don't need to buy in bulk
like the other two.

~~~
dmitriid
Nvidia doesn't make the hardware. They make designs. Other companies (for
example, Asus) make the actual GPUs

~~~
mastax
Nvidia does make hardware. Sure its more common to see a third-party card in a
boutique or homebuilt PC Gaming computer, but Nvidia does make and sell cards
which are very common in other places. Large PC vendors will use first-party
cards (Apple, Dell/Alienware, HP/Origin). Workstation cards are almost all
first-party. Compute, ML, and embedded products are all first-party.

------
meri_dian
"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
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
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
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.

------
dlubarov
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)

~~~
CryptoPunk
The Ethereum wiki is wrong on this point in my opinion.

Even disregarding grinding attacks, 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.

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.

~~~
dlubarov
> the value diverted to coin purchases ultimately has a cost in goods and
> services

I see what you mean, but that opportunity cost applies to all currencies.
Every dollar we hold in currency (be it fiat, PoW or PoS) could have been
invested in productive businesses. People tend hold substantial amounts of
currency anyway since it's convenient.

If we assume that people are going to hold about $10 trillion in currencies
anyway, then it makes sense to ignore that opportunity cost when comparing PoS
to PoW.

> 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.

I agree -- aligning validators' and stakeholders' incentives has some nice
benefits. It means we can have validators vote on parameters like minimum
transaction fees, and the outcome of the vote should reflect what's best for
stakeholders as a whole. In a PoW system that wouldn't work well -- the miners
would likely vote for minimum fees that were higher than required for secure
validation.

~~~
CryptoPunk
>>I see what you mean, but that opportunity cost applies to all currencies.

I don't mean that. I mean the actual process of converting liquid wealth
into/out-of ether staking deposits, and of sacrificing liquidity to maintain
stake deposits. That is not a free activity.

Given the earnings accrued to anyone with staking deposits, there will be
competition to increase the share of one's wealth that are held as staking
deposits, and that requires increasing frequency of these activities.

The cost of all of these activities will approach the revenue generated by
holding ether.

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

~~~
neilwilson
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.

------
lwansbrough
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
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.

------
Zenbit_UX
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.

~~~
bgibson
_> It still expends resources, but does so in a non wasteful manner._

And this is a flaw. There is a law of conservation at work here, whereby to
create one source of value, another has to be destroyed. You can't destroy
that first source "in a non-wasteful manner". It's not actually destroyed in
that case and you've effectively double-spent it and cheated the system in a
way that has subtle ramifications on the incentives and security. Even in
blockchain, incentives matter and there's no free lunch.

~~~
kosievdmerwe
Value can be created. Cars are more valuable than the piles of metal they're
made from.

~~~
bgibson
True, but to nitpick it looks more like this:

Raw materials + innovation + labor + capital + time = waste byproducts + new
utility added to the world in the form of convenient personal transportation
that is sometimes (hopefully all the time) worth more than the sum of its
inputs (profit). But all of those inputs get consumed in the process and one
thing of value is the result.

Dual purpose mining consumes the inputs but creates two things of value, such
that the miner is able to hedge, and to recoup their losses if the
cryptocurrency fails. The fundamental problem is that reduces the cost the of
attacking the currency, rewriting the ledger from some past point in history,
should the miner decide to attempt that. In order for cryptocurrency to be
secure, it requires that the miner be fully committed to the currency and that
attacks are maximally costly and risky, unhedge-able (at least within the
system, they can always short on third party exchanges and whatnot, but
there's nothing the protocol can do about that), such that the miner's highest
expected value is follow the protocol honestly.

------
zby
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-p...](https://medium.com/@zby/proof-of-stake-can-be-cheaper-than-proof-
of-work-da14223a965)

------
jagger27
(2015)

~~~
lalaland1125
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?

~~~
annywhey
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.

------
RobLach
Having a state control a currency seems to be.

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SrslyJosh
Nothing says credibility like TRUTH COIN DOT INFO.

