I keep seeing the argument that Proof of Stake is more centralizing than Proof of Work, but it doesn't really add up with what I'm seeing in practice - Bitcoin mining centralized heavily around cheap electricity sources and companies that can afford SOTA dedicated mining ASICs. In contrast, anybody can become an ETH staker by purchasing the requisite amount of ETH (currently worth around $128,000, previously closer to $32,000) and make profitable return on it. You also retain a liquid asset that can be sold back at a later date. With the staking pools even this lockup amount can be reduced arbitrarily.
For a consumer to participate in PoW based on current miners it seems like they need to buy perpetually out-of-stock specialized ASICs for a sunk cost of $10-15k with the expectation that they'll break even in about a year and probably need to refresh in 3. The hardware management aspect as well as the variable cost of electricity seems to incentivize centralization of mining significantly.
Being able to standup a staking node with commodity hardware seems far more accessible.
Yes Bitcoin mining centralizes along the ability to mine which involves things like electricity, technology, politics, social factors, maintenance, and a host of factors. The point is that all those factors are quite dynamic and can change from year to year.
Proof of stake entrenches a group of rent seekers in perpetuity, without the need to do anything external, or anything whatsoever. The risk of mining is quite high as we've seen the past few years and there is no singular entity that has dominated Bitcoin mining for more than 3-4 years. Furthermore even when Bitcoin was dominated by Bitmain and a few other miners predominantly in Asia, they were unable to use their mining power to influence Bitcoin.
So the argument comes down to Bitcoin depending on external factors that are quite risky and requires constant upkeep and innovation in order to maintain ones position in the ecosystem, versus proof of stake where absolutely nothing is needed to maintain one's position.
> Proof of stake entrenches a group of rent seekers in perpetuity,
Ahhhh, that's a light bulb for me.
PoS is a step backwards in security, but perhaps not a meaningful one. Bitcoin has proved itself to a rock, or possibly a mountain range when only a rock is needed.
But yes, Bitcoin's mining fees are very carefully structured to be a near perfect market. Not so great for the miners - but perfect for the currency and it's users. Now you mention it, or Ethereum PoS looks like an excellent mechanism for the dominant Ethereum holders (which includes the founders - a point I'm sure hasn't escaped them), to entrench their position. I think we can safely predict things will take their natural course over time - and they will start charging what they think the market can bear.
Staking is not any more rent seeking than mining is. Stakers calculate and propagate valid new states for the chain. I also don't see anything entrenching or perpetual about it.
It's not as though increased mining efficiency provides some net good for the Bitcoin blockchain, e.g. increased transaction throughput. It just provides a profitable edge for the miner. You'd just expect difficulty to increase, not energy usage to decrease. I don't think there's any particular reason to desire this sort of cross-miner competition that produces negligible societal gain.
E.g.: "The classic example of rent-seeking, according to Robert Shiller, is that of a property owner who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee to lower the chain. There is nothing productive about the chain or the collector. The owner has made no improvements to the river and is not adding value in any way, directly or indirectly, except for himself. All he is doing is finding a way to make money from something that used to be free."
Renting housing is generally not rent-seeking - that's exactly my point. If a property goes up for sale one can (1) choose to invest capital to purchase it, and (2) offer a contract for housing at a managed property to people who can't necessarily afford the capital investment of property purchase. Providing a service (housing access and property upkeep) in exchange for money is literally not economic rent-seeking (gaining wealth without any reciprocal contribution of productivity).
It's only for the particular school of Georgism (which holds that all undeveloped land value should be rightfully owned by citizens equally) from which the phrase originates that the transaction of "housing rent" is viewed as unjust enrichment (in that the majority of the cost is assumed to merely cover rights to the undeveloped land). Even through this economic lens it's difficult to make the "rent" definitions align, as the notion that a property might "go up for sale" is already a violation of the principle - the landlord is still providing a service with investment capital, they're just forced to work within the confines of the system for private land ownership.
Decentralization is not about how big the players are, but how replaceable they are. PoW mining is identity-agnostic: anyone who owns the mining equipment and knows how to run it can participate. Players are maximally replaceable, a point which was demonstrated quite remarkably when China shut down Bitcoin miners this year.
I wholeheartedly agree, I wrote a more detailed analysis of the different sources of centralization and how both algorithms measure against them that I think is relevant so I will copy paste it here.
I see multiple factors that hamper decentralization:
- Fixed costs that act as barrier of entry
- Economies of scale that lead to centralization
- Geographic factors (operation costs being different in different parts of the world, regulation/taxation, supply chain...)
This is how I see each factor playing out in both scenarios:
- Fixed costs: PoS runs on consumer-grade hardware, while PoW requires specific HW (ASICs or high-grade GPUs). PoS requires a minimum amount of stake but there are decentralized pooling solutions (e.g., Rocketpool), which effectively make this minimum non existent. All in all PoS is at advantage here, unless you want to insist on solo staking in which case PoW is at advantage.
Analogy: This would be equivalent to flat fees to open a savings account or a minimum amount balance required to open it.
- Economies of scale: In PoS they are almost non-existent. You don't stake more efficiently by having a more powerful machine. You just get to reuse the same HW for more nodes but since fixed costs are low this has a very small impact. In PoW there are economies of scale, though, better/more expensive ASICs can mine more efficiently than smaller/cheaper ones. Same with GPUs. Someone with more initial capital can get ahead faster in PoW, while in PoS earns at a same rate as everyone else.
Analogy: This would be equivalent to the interest rate you get in your savings account being dependent on how much money you have. In PoW, the richer you are the higher interest rate you get from your bank, in PoS everyone gets the same.
- Geographic factors: Cheap access to energy has a large impact on PoW as it dictates most of your OpEx. In PoS this is largely irrelevant (PoS is 99.95% more energy efficient than PoW). Taxation/regulation would need its own analysis but I imagine is equally spread across both alternatives. Supply chain is again in favor of PoS as it can run on general-purpose HW, while ASICs are heavily centralized around a single manufacturer.
Analogy: This would be equivalent to different geographic locations resulting in different conditions for maintaining open your bank account or taxing your accrued interest.
I don't really get your point here as you don't have to buy ASICs every X years with PoW consensus. A friend of mine mines with his 3070 in a mining pool and makes a small plus with it. Hell, you can even mine with a 7 year old PC. Will you ever find a block? Probably not, but you're still securing the network and may get lucky. I don't see how this incentivizes centralization any more than PoS. With PoS, you have to be part of the network by spending money on a token while with PoW, you just need an existing PC with some compute power.
In a PoW coin, if the cost of electricity < price of coin, more people will start mining, and vice versa. So let’s assume that over time, the price of a coin = cost of electricity to mine it + amortized/opportunity cost of the hardware (and assume that cows are spheres - https://en.m.wikipedia.org/wiki/Spherical_cow).
But electricity costs can be very different in different parts of the world. This leads to miners in areas with high electricity costs shutting down, and mining operations opening up in low electrical cost areas. This can lead to a majority of the network falling under one political jurisdiction. PoS avoids this problem entirely.
>The digital blockchain, via proof-of-work, is thus connected to real-world natural resources.
This, in essence, is why any further adoption of PoW chains is deeply incompatible with climate change mitigation. I'm happy to see crypto mature into some kind of open source / open protocol financial system but it needs to happen strictly on proof-of-stake chains (whatever the challenges to decentralization).
You can say this about anything that uses lots of electricity. Sure, removing it solves the immediate 'problem' but its also not any more practical than having everyone walk everywhere solves the immediate carbon impact of driving. The solution is to invest in more solar, nuclear, and energy storage solutions. Our Earth is already plenty rich in resources to scale up power requirements, and our sun provides near unlimited energy. The energy problem isn't unique to Bitcoin. Using a lot of resources is also the main benefit to the security behind proof-of-work because it makes building a duplicate ledger immensely impractical. The security of the chain actually increases the longer blocks are joined after an input which is pretty cool.
> The solution is to invest in more solar, nuclear, and energy storage solutions.
> The energy problem isn't unique to Bitcoin.
The unique problem with Bitcoin and PoW in general is that its energy usage is inversely proportional to the cost of energy. If the total value of Bitcoins mined every day is $X, collectively Bitcoin miners will use just a little less than $X of power every day.
That means that any time we do improve our energy infrastructure, by increasing supply with more renewable sources or reducing demand via efficiency improvements elsewhere (all of which reduce energy prices) Bitcoin mining becomes much more profitable, miners expand and new miners appear, and PoW's energy usage goes up accordingly to use as much power as they can possibly afford (up to $X).
This isn't true for anything else - there's no other industry that so directly turns energy into money without limits. While there is a relationship to other energy usage, if energy drops to 1/100th of its current price, people don't start heating their houses 100x more, they don't start gaming on 100x more power-hungry computers, and they don't start taking 100x more flights than they do today, because in each case, there are significant other limits and marginal costs involved.
PoW meanwhile will absolutely increase its power usage by 100x, as fast as the network possibly can. This is why PoW's energy usage is a unique problem.
You make good points on how bitcoin could grow to use a larger share of generated energy even without increases in its exchange price, but don't forget Andy and Bill's law: "what Andy giveth, Bill taketh away".
More generally, the Rebound effect suggests other expansions will consume a sizeable portion of efficiency gains (or possibly exceed it). Video gamers will want higher res VR devices, they'll want richer worlds with better physics, animation, AI units and high fps high resolution graphics. AI software is absolutely guaranteed to use up any 100x gain in efficiency and more will be demanded of computers.
A backfire effect is predicted as possible if new capabilities once discarded as infeasible open up (ala aluminum smelting, constant use of AC) and when new economic activity generated by gains in efficiency results in a larger number of wealthier participants. Such effects from efficiency gains are fine so long as they're focused on energy and not say, polluting fuel use efficiency.
Buckminster Fuller proposed ephemeralization as the manner in which prosperity could increase given growing population and finite resources. This takes place because as material use decreases; information, computation and energy use intensity increase as more activity is displaced into them.
TL;DR; the comment above yours is absolutely wrong about having 100x more energy won't bring 100x more flights. If my car could expend 100x more energy, it would be easily able to fly, so everyone would probably start flying as their regular commute.
The author's opinion on this topic is that energy arguments are basically bunk, but she doesn't mention the scaling you do. I'm unequipped to judge who's right.
Most energy arguments are little more than hot takes, speculating on what might happen in hypothetical worlds where the cost of energy behaves in a way that it literally has never behaved in human history. The efficiency of energy production, storage, and transmission has always been and will always be the fundamental anchor of worldwide economic growth.
> This isn't true for anything else - there's no other industry that so directly turns energy into money without limits.
Aluminum refining maybe, but even then you are going to run out of ore to turn into aluminum. This really highlights how novel the mining economics are.
PoW also requires ASICs, and as the recent semiconductor shortage illustrates there are definitely limits to how much supply that industry can crank out. Mining rigs depreciate and must be replaced eventually, so it’s not like the supply can just grow without bound either.
>You can say this about anything that uses lots of electricity.
Yes. You can.
Let's actually generalize it to anything with an outsized carbon footprint (e.g. commuter flights, car dependent housing development, &c).
We will almost certainly continue doing that stuff but it's incompatible with any vaguely desirable ecological outcome. PoW crypto is special in that it is both highly optional (it's not essential to the lifestyles of 99.999% of people) and has easy substitutes.
> PoW crypto is special in that it is both highly optional (it's not essential to the lifestyles of 99.999% of people) and has easy substitutes.
I’d like to hear what other economic activities you consider “highly optional” and whether they are more or less deserving of economic resources than Bitcoin.
Why don't we just relay on the price energy to allocate its use kind of like we do with almost everything else? That's the point of prices. If energy is not priced correctly then the government should adjust the price through a tax. But let's drop the morality shtick every time cryptocurrencies come up.
We do tax lots of other kinds of energy, but you have the dilemma where crypto will use the least taxed, least cost energy anywhere in the world, dump the externalities into the atmosphere, and no one can tax energy everywhere to make them pay to clean it up. That's why you have things like coal fired electrical plants that used to no longer be competitive firing up at full capacity again to mine cryptocurrencies.
Crypto mining can't be curbed by carbon taxes in any energy market like normal electrical consumption.
You address this by taxing at the fiat on/off ramps. The ones with access to the deepest liquidity also happen to operate in jurisdictions that have functioning governments that are amenable to passing taxes on PoW. And if that doesn't work, you impose sanctions and tariffs on the countries that permit limitless PoW mining, up to and including black-holing their IP blocks.
You can ban CFCs in refrigerators/products that come through customs and monitor their emissions from space. The first is just impossible and the second probably impractical to pin on the carbon output of specific mining operations.
The taxes on PoW specifically interfacing with the financial system is a weak form of banning it and is definitely something that would work though, but what the gp seems to be arguing strongly against. They are asking why the energy price can't be updated to encompass the negative externalities instead of indirectly taxing it through the PoW's blockchain when it interfaces with the financial system.
Carbon taxes on energy used to mine bitcoin will cut into profitability, leading to some proportion of the least-efficient miners turning off because they are no longer profitable.
How do you enforce the carbon taxes? If I mine somewhere off the books in a random part of the world, my block is not distinguishable from one that paid a carbon tax on its emissions.
Carbon taxes can very effectively reduce the amount of carbon-emitting energy used by bitcoin in jurisdictions it is enacted.
How to coordinate a global carbon tax seems like a much bigger problem than cryptocurrency. At 0.5% of global energy use, even if crypto mining was magically eliminated in an instant, 99.5% of the problem would still remain.
Also, feels weird to try to address this problem on the demand side instead of the supply side (which has much more direct influence). Machine Learning training is power intensive and location-insensitive, but it feels odd to worry about 'how to enforce carbon taxes on ML training'. "Which uses of energy are economically profitable" seems tangential to "how much carbon is produced by energy generation".
“Random parts of the world” are not cranking out the electricity required to secure the Bitcoin network. Your hypotheticals need better anchoring in reality.
I think what happened when china banned Bitcoin is instructive to what would happen if a nation attempted to increase the energy prices for mining in it's borders - much of it moved to the next cheapest option, like coal plants in Mongolia, however being banned in China did decrease the price and use overall. Which is basically my point, you would be playing wack-a-mole with policy across the whole world trying to work on it from the supply side and energy prices, it will just keep moving to the most enviromental-legislation-lagging internet connected place. However, legislating the interfaces between your country and the network do drop the overall use and demand for mining effectively.
We're seeing the fruits of years of relentless climate narratives connecting all energy usage to pollution, and therefore all energy consumption (for any purpose) is considered inherently evil.
Does that mean everyone who plays video games after work is literally satan for consuming energy for mere entertainment?
Life itself consumes energy; does this mean the universe would be better off without us in it?
This is obviously a nihilistic viewpoint once you follow it to it's natural conclusion.
I expect the future will have a combination of both PoW and PoS due to fundamental trade-offs. So I got news for everyone. Proof-of-work exists and isn't going anywhere. You can't just yell at the clouds wishing we could make it illegal for "environmental reasons". PoW is not "incompatible with climate change mitigation", this is obviously a straw-man. There's plenty of energy to go around, and we have to solve the climate+energy crises either way. Not to mention Co2 emissions alone is just one small part of the overall climate concern.
I'm more interested in individuals and organizations willing to actually solve technical problems related to energy and climate, and choose to ignore those just yelling at politicians to solve it for them.
> Does that mean everyone who plays video games after work is literally satan for consuming energy for mere entertainment?
If that replaces them and the three friends they are playing with from each driving in their own car to the bowling alley 25 minutes away then it's a net carbon savings. It's all about the alternatives, and in the case of cryptocurrencies, a lot of people think there are comparable, much more energy efficient alternatives for everything you use crypto for legally. There really is no ridiculous conclusion here, it's about the alternatives.
> there are comparable, much more energy efficient alternatives for everything you use crypto for legally
No. The only alternative that is even remotely similar to Bitcoin is gold, and gold mining is horrendous to the environment. Proof of stake coins are not Bitcoin, they don’t provide the same value proposition, and if you don’t understand why then I’d encourage you to do some more reading (including the entirety of the article linked in this post).
Taking your analogy: that doesn't make going to bowling alley as an evil alternative to video games? We should all acknowledge that's a straw-man argument. But this is the kind of argument you hear against PoW. For all we know they are driving electric cars to the bowling alley. Does that make the scenario different? How's that different from PoW powered by solar?
It's a difference of degree. Going to the bowling alley in a gas car is certainly worse for the environment and if they were perfectly substitutable you probably shouldn't choose the bowling alley. They certainly aren't perfect substitutes.
Neither is PoW and PoS, but it's still a question whether those differences are meaningful and worth the tradeoff. The argument is not absurd, there are real costs to the PoW approach worth considering.
The PoW powered by solar is different but it's also a mythical beast. By design there would be no way to legislate the kind of energy the mining part uses because it's opaque to the users of the network. The only thing reasonably open to legislation by a country are the interfaces of the network with the countries financial system and by then it is impossible to determine the providence of the energy it used. It's also impractical to make enough energy where coal or other fossil fuels aren't economical to mine blocks in a popular PoW scheme.
Imo this is like arguing we should all have private helicopters instead of bicycles- PoW currencies should be criticized on environmental grounds if the thing they replace (a bunch of bank servers doing ach and whatnot) is an order of magnitude more electrically efficient.
Bitcoin isn't just a replacement for the centralized database: it also replaces the government which administrates the financial system, the courts which enforce rules, and the military which enforces dominance on the rest of the globe.
Strong disagree, (some of) those things are all still necessary to prevent me from coming to your house and hitting you with a wrench until you give me your private key; to prevent me from taking payment and then ghosting you; and innumerable other financial system problems we solve with our current system.
> You can say this about anything that uses lots of electricity
Sure, but it's especially important to say here because proof-of-work cryptocurrencies are novel, popular, and consume orders of magnitude more electricity per transaction than more common transaction processing systems.
Bitcoin is a hard currency first; it includes a mechanism for transactions because that is a hard requirement for anything that functions as a currency but the network is optimized for security not throughput. If my only problem is paying people and getting paid, then Visa/ACH works just fine. If my problem is lack of confidence in my nation’s money supply (and this is a very real problem in quite a few countries) then Bitcoin is unquestionably the most convenient alternative.
I don't buy it. Bitcoin has much higher volatility than other currencies and much higher costs to use it. If your problem is lack of confidence in your nation's money supply, you're better off getting some more stable currency, like any one of these: https://fxssi.com/top-10-world-most-stable-currencies
Quantifying the energy per transaction of fiat is hard. Yes, changing a number in a centralized database is cheap, but the cost of maintaining trust in that centralized database is immense and has far-reaching tentacles.
Ex. How much of the energy budget of the US military should be included in the cost of a dollar denominated transaction?
Answer: it doesn't matter. If a relatively small number of people (say, 10m) stop using the US dollar, its military isn't going away. But if the same number of people stop using POW "currencies", the energy impact could drop drastically.
And if we were charging for underlying infrastructure costs, then Bitcoin would have to put in its share. Unlike paper/specie currencies, Bitcoin is entirely dependent on a functioning global internet. There are an awful lot of long-tail scenarios under which Bitcoin becomes effectively useless and therefore valueless.
> If a relatively small number of people (say, 10m) stop using the US dollar,
This is a very weak straw man. The majority of people on the planet interact with the dollar economy, either directly or indirectly, because of its extreme dominance. Of course a ~0.3% reduction in users isn't going to change much.
Dollar hegemony is fairly binary: either it's the dominant world currency or it isn't. If hegemony falls, the US military will have to reduce in size, because it can no longer be funded by being the gatekeeper of the global economy.
Interesting speculation, but all wildly off the point. Which is that ending POW "currencies" would have a significant environmental benefit with an amount of inconvenience somewhere between marginal and net negative.
It would not be a "significant environmental benefit". POW mining is ~0.5% of global energy usage. If it was magically eliminated, that 'progress' would be eliminated in a year as growth in the more urgently-relevant sectors continues marching on.
It seems you don't see the value of POW cryptocurrencies at all. The attitude that "bitcoin is worthless, so any energy spent on it is wasteful" has been parroted a lot on HN recently, but... scoreboard: the market disagrees. I wish more bitcoin skeptics kept some intellectual curiosity around it rather than just writing it off as "I don't get it: its worthless" - there are reasons people are paying tens of thousands of dollars for a bitcoin, even if you don't understand them.
I think these attitudes are indicative of cognitive dissonance in individuals who dismissed Bitcoin a long time ago and don't want to recognize their own regret for discounting it: if they didn't dismiss it their net worth would probably be higher today.
Redirecting 0.5% of global energy to productive use is very clearly significant. That's the whole-country level of energy usage.
Markets also value Ponzi schemes highly. So what? Markets can be a useful guide to value in certain circumstances, but it's correlative, not probative.
I've had plenty of intellectual curiosity around Bitcoin, blockchains, etc. For a while I was hoping something good would come out of it. But it's been 10 years and there's been almost no economically positive use demonstrated. It's great for certain kinds of light financial crime (ransomware, money laundering, etc) and it's great for creating the sort of unregulated markets in which scammers, fraudsters, and other economic parasites thrive.
I'm personally very happy never to have put a nickel into cryptocurrencies. Could I have made a bunch of money? Maybe! Would have it been through creating value? No, not at all. It's a "greater fool" game, and I don't play those. I haven't since I quit working for financial traders in the 1990s, as I don't think it's moral to get paid when no value is created.
But maybe the real answer is to just have trusted authorities? So much of civilization is possible because of trust, I don’t think we should throw that away.
You need trusted authorities anyway. Anyone may show at your home and steal your crypto currency at gun point, you may pay for items that are not delivered, your employer may not pay you. Authorities and the rule of law are fully needed for any functional society. Crypto currencies as an anarchist dream are impossible as a very complex society is needed to produce them, and that society requires to be functional.
If someone wants anarchism they should simplify and use gold or some other easier to carry and exchange.
In my experience, your described state of affairs is common in poor economies. Robberies and kidnapping ransoms are relatively frequent. Shootings are rare but still way too frequent. Workers often go unpaid and it's not unusual for wages to total less than transportation costs. Landlords are known to have poor memories about paid rent and it's not uncommon for deliveries to be stolen and containers disappear. There's a real risk of valuable goods ordered internationally "disappearing" in customs.
The countervailing factors are, the poor are mostly ignored (except for kidnappings of large groups of children) while the rich can afford private security at an equilibrium price point where betrayal is not rational. Although crime rates are high, most do not participate because people are good for the most part. The major drags are scams, unpaid workers, phone theft (a phone is more likely to be stolen than a laptop), equipment sabotage (from wiring to rail tracks), political campaign related violence and most especially, theft, corruption and embezzlement by government officials.
In an environment of rampant corruption, minimizing the surface area exposed to trust is a rational preference. It might even be helpful in exiting a high corruption steady state.
> Anyone may show at your home and steal your crypto currency at gun point, you may pay for items that are not delivered, your employer may not pay you. Authorities and the rule of law are fully needed for any functional society.
In a crypto anarchist’s dream world, the employee’s income claimable token could be resold, purchased by a loan shark, and the loan shark could provide another permission-less contract where anybody can upload a picture of the employer’s knees being broken, likely verified on chain by some other pain oracle.
You obviously live in a society where central authorities are, in fact, trustworthy enough to handle these things. A cursory glance at history—or at other societies even in the present day—shows that this is a shockingly rare state of affairs.
No one is suggesting that everyone must use Bitcoin, but please understand that over the past 100 years the majority of the world's currencies have collapsed one way or another. Not every country is the U.S. which has been able to use its military might to maintain the value of its currency. Russia, Mexico, India, many European nations prior to the Euro, most of South America, have all seen their currencies collapse at some point in the past 50 years or so, and in many cases within the past 30 years.
It's possible that the US dollar doesn't collapse at all in the next 50 years... and that would be great... but it's also possible that at some point in the next 50 years the US dollar ends up being devalued significantly in which case it isn't such a horrible idea to take some of your cash and store it in a globally accessible cryptocurrency in addition to other assets such as gold.
Okay so I kind of see where you're coming from, but I still strongly disagree with you.
You're saying that because world currencies collapse (your claim is the majority of them have within the past 100 years, which I don't have the data on, but let's just assume for the sake of argument that you're right), bitcoin is needed.
But bitcoin collapses not just every 30-100 years, it collapses every 0.5-5 years. [1]
How is that in any way better? Why are we spending all this energy on this?
> But bitcoin collapses not just every 30-100 years, it collapses every 0.5-5 years.
When someone says that a fiat currency collapsed, it means the value went to zero forever. Bitcoin hit a new all-time high price in USD just recently. Not the same usage of the word collapse.
This paper by the European Central Bank has a very in-depth discussion of the definition of currency collapse in section three [1], including three proposed definitions, two of which are given as mathematical formulae.
It specifically does not require permanence for any of the definitions, there's even an entire subsection on the varying degrees of persistence of various currency collapses.
Interestingly, from a first glance, it would also appear that most of the bitcoin collapses linked above fit the definitions in the paper, or iow, are just that, collapses.
Thanks for the arcane technical note, I’m sure the OP who referred to currency collapse was using that term in the precise technical sense that the ECB uses it /s
You tried to derail my argument by casting doubt on my use of the term, I demonstrated at great length my use was in fact correct, you responded with snark.
Crypto is an attempt to solve a political problem, untrusted authorities, with a technology. This can never work, and without a political fight any crypto/web3 infrastructure will not catch on in a meaningful way unless it is bent to serve the interests of those authorities.
The immediate carbon impact of driving should be solved by improving public transportation and weening people off individual transportation.
The immediate carbon impact of proof-of-work should be solved by banning proof-of-work. What is the problem any of this is solving?
It seems to me like your defense of proof-of-work is "it needs to be this way to work properly and it's not that big a deal", but why do we even need it to work? If it has a clear carbon cost and no perceivable benefit, then it seems obvious to me we should get rid of it.
I see no “perceivable” benefit in lots of things that other people choose to spend their time and money on. But at least I have the decency not to say it out loud.
How much electricity could we save by shutting down every porn site on the internet? Probably more than we’d “save” by shutting down PoW blockchains.
Every economic activity uses energy (electricity, or combustion) in one form or another. The argument you’re really making is that the net increase in energy usage due to Bitcoin’s existence—and the resultant carbon impact, however you propose to measure it—is not worth the benefit provided by the Bitcoin network. But if you’re going to judge Bitcoin by its carbon footprint, you might want to judge all other economic activities by the same standard to avoid accusations of hypocrisy.
Proof of Authority might be better than staking. There are some interesting winner take all like properties in both systems. One is easier to regulate for the broader good when things go awry.
You can still have smart contracts and shared ledgers. There are efficiency and collaboration gains. This will likely happen anyway, regardless of what happens in the public permissionless space.
It's a permissioned system, so there is a cartel like group who decides who can do what. It's very similar to what we have today. It's also not like anyone can add code to Bitcoin, so there are permissioned parts of the system.
PoA is centralized, by definition. You are approved to be a validator by some trusted entity. In theory, this can be a group or consensus (you could imagine a PoA scheme where the set of authorized validators is passed around like a HOSTS file), but you still need to trust the mechanism that authorizes validators. You lose your right to be a validator through misbehavior; you are removed from the list of authorized validators, and hence can't do it anymore.
Use of energy is not necessarily incompatible with climate change mitigation. PoW uses electricity and is completely agnostic to whether that electricity is generated by fossil fuels or clean renewables/nuclear. Piddling about how civilization chooses to use electricity as a solution to climate change will be a never ending game of whack-a-mole. The only solution is to address it at it's source, by internalizing the negative externalizes of carbon pollution in the cost of this energy use. Anything else is feel good bullshit.
Moreover, to the proponents of PoW, it is not a flaw to be removed, but a necessary foundation that makes the protocol incorruptible and eternally open and permissionless for anyone to join as first class citizens, even late adopters. This stands in stark contrast to PoS which gives an absurd level of power and protocol control to early adopters that potentially can't ever be diluted, and may even increase since PoS rewards holders of coin with even more coin.
This is a mix of climate denialism and Bitcoin religion.
1) A system that turns energy usage into $ will always gravitate towards the cheapest energy source (fossil fuels). Maybe we'll eventually figure out cold fusion, but for the next few decades it's pretty important to promote carbon neutral energy production even if it's more expensive while simultaneously cutting out gratuitous industrial scale waste like PoW mining.
2) "makes the protocol incorruptible and eternally open and permissionless for anyone to join as first class citizens, even late adopters". Ah yes, let me just fire up my warehouse full of ASICs connected to a dedicated power plant. Any old Joe could do it.
No, you just misunderstood him. He's saying that energy generation and use should be carbon taxed. If you internalize the carbon externality, fossil fuels will not be cheap.
There are arguments against these, but yours is a poor one.
Since one of the inherent properties of PoW cryptocurrencies is it doesn't matter where the mining takes place, mining will always take place in whichever country doesn't impose a carbon tax. Ironically they're much more "censorship resistant" to carbon taxes than actual attempts by major economies to ban their use (which would only need to be partially effective to squash the price bubble and by extension reduce incentive to spend on mining)
That's already a problem. Developing nations are consuming an ever expanding amount of fossil fuels. And they're sure as hell not going to stop, because the advantage to their citizens of developing their infrastructure towards Western standards of living far outweighs projected threats of climate change.
Developed countries are already making okish strides on decarbonizing, but how can we in the first world effectively decree that the developing world must halt or slow progress towards the lifestyles that we enjoy. That reeks of a new kind of colonialism, and simply won't go over well without the threat of global violence.
The only way we'll actually make strides on decarbonization is with some kind of global carbon tax. I'm not going to pretend I know how we accomplish that, but if we can't, we're not going to mitigate climate change in any reasonable way.
Geopolitical energy cost arbitrage is a major climate change issue, but I feel like it's disingenuous to focus on crypto as the main problem.
The majority of these harms are in heavy industry, manufacturing, logistics, etc. I'd estimate only 1% of this problem can be attributed to cryptocurrency.
If crypto was somehow globally banned, the problem would not be significantly diminished. If bitcoin eventually becomes responsible for 10%+ of dirty energy, only then would this argument be compelling to me.
This is a mix of Bitcoin denialism and climate religion.
1) Bitcoin mining is increasingly migrating to hydro and geothermal, because fossil fuels are too expensive in comparison. Presumably, nuclear will come eventually.
2) See what I did there in my first sentence? We should have an intellectually hygenic discussion; there is no valid place for the kind of rhetoric you're employing.
We hear this same story every single time the topic comes up. It's not the most convincing argument. First, the real world experience is that bitcoin miners don't care about whether they are using renewable energy. Furthermore, we should not ignore the substantial carbon emissions from building the mining infrastructure (the mining hardware, plus also the power generation). A protocol that promotes a colossal amount of e-waste is swimming in the wrong direction when it comes to fighting climate change.
You can't rely on the consumers of electricity to solve the problem of it coming from fossil fuels. This is a policy problem, and unless people start caring about what goes on in government it doesn't matter. Washington, for example, has demonstrated recently that even an administration that is supposed to be taking climate change seriously has encouraged fossil fuels to flourish.
The system we currently rely on is founded on proof of violence, which also creates a colossal amount of waste, and not just in our garbage dumps.
And you seem to be ignoring my point, that until we internalize the costs of burning fossil fuels, there will always be someone willing to burn it, even if it's not bitcoin miners.
> So, it’s [Ethereum] a big operating system powered by crypto tokens, for the purpose of moving around… crypto tokens.
This is the thing that few authors understand about Ethereum. The main use case is creating new tokens and trading them, and this was clear from the beginning when Ethereum was created as an alternative way to do Bitcoin colored coins. This is not entirely useless. Speculation is a "use" after all.
But as the article lays out, such uses are likely to be dwarfed by uses around censorship-resistant base money. Especially with the ways in which the worlds major government-backed currencies have been weaponized.
> Ultimately, it partially depends on what governments want. Smart contract platforms with centralized attack surfaces can only exist at the pleasure of the government, so it comes down to how much regulatory crackdown they get vs how much regulatory approval they get.
Another point that authors seem to really not get. It's all memes and good times until governments discover there's a casino operating out back that's not paying tribute. We haven't so far seen the effect of a western government clamping down hard on this, but if it comes, it will come to "stable" coins first. And as the author notes, the probable success of such clamp downs positively correlates with the degree of centralization.
"Proof-of-work is fundamentally very simple, is easy to analyze, is easy to implement and deploy, and proof-of-stake has a lot of moving parts. You can code up a proof-of-work algorithm in a hundred lines [of code] or so. Our current (Ethereum) clients are a hundred thousand lines or so for proof-of-stake."
What could possibly go wrong? Remember the DAO hack. The author also points out that proof of stake makes it much easier to change the rules for a token. He considers proof of stake coins to be a different asset class because of that.
NFTs:
A key problem is that these types of NFT sets are pretty easy to manipulate ...
The first scam is to bid up asset prices and trick buyers into thinking those prices are real and to buy into it. It’s market manipulation, in other words. For example, a user can set up five different Ethereum addresses, and start trading around an NFT to themselves at increasingly higher prices. Outside observers don’t know that all these wallets belong to the same person and that this is literally just insider trading. This is only possible with a non-fungible asset; you can’t manipulate the price of an individual bitcoin or an individual ether on your own, you can only manipulate unique objects like for example CryptoPunk #9998. Then, with prices (seemingly) so high, some people want to get in on the momentum and buy the NFT, so the person who was trading among their own wallets finally sells the asset at a higher price to that unsuspecting newcomer. When that newcomer tries to sell the asset, he or she is unable to find other buyers who actually want to pay that price. They don’t realize that a lot of the liquidity and price-escalating transactions were actually just manipulation.
Yes. We know now that the famous Beeple sale was faked like that. Go over to OpenSea and look at some of the high-priced items. Then look at the bid prices on them. As I pointed out previously, this is exactly like Beanie Babies on eBay - asking US$5000, actual sales around US$50. The result is a stalled market, rather than a crash - lots of asks, few bids, orders of magnitude bid-asked spreads, few transactions.
Stablecoins:
"any smart contract blockchain that relies heavily on DeFi for its use case, can have the outcome of its hard forks significantly determined by centralized stablecoin custodians. These custodians can nullify the value of all stablecoins on whichever side of the fork they don’t view as the correct one, which severely reduces the survivability of that side of the blockchain by rendering its DeFi mostly insolvent."
> You can code up a proof-of-work algorithm in a hundred lines [of code] or so. Our current (Ethereum) clients are a hundred thousand lines or so for proof-of-stake.
There is an obvious asymmetry here. You can code up a toy PoS implementation in less than the hundred thousand lines of code in the actual production ethereum clients. The production PoW implementations are also not "a hundred lines or so".
And it's not that this point is wrong, PoS is more complex than PoW, but the hyperbolic comparison is not necessary to demonstrate that point. It sets off my "doth protest too much" alarm.
There are lots of ways to game proof of stake, and those require special case fixes. If someone can obtain a majority of the stake for a short period and take over the system, that's a big problem. Yet the whole point of much DeFi stuff is to have atomic transactions which involve a big loan, some transaction, and a payoff of the loan.
This is better than the rant from the other day but still has some questionable parts.
1. Saying PoS is bad because it has more economy of scale than PoW is contrary to what we see in reality. People need to verify their first-principles thinking.
2. The "you can't run a PoS node" stuff is not universally true and seems like an unacknowledged PoW bias.
3. Talking about what happens after hard forks is like worrying about surviving nuclear war. The focus should be on preventing it IMO.
Yep regarding (1), the article focuses on the stakers having much lower expenses, while disregarding their much lower revenue. Stakers and miners can both reinvest their profits, and stakers don't have a big advantage here.
The second scam is to create a big loss to reduce tax liabilities in a fraudulent way. Again, you create several different wallets. One of them is linked to your real name and the others are anonymous. You buy an NFT with an anonymous account that you control for $200k, and sell it to another anonymous account you control for $250k. Then you sell it to your real-name account for $500k. Your real-name account then sells it to another one of your anonymous accounts for $200k, locking in a massive $300k “loss”. Your anonymous account can then potentially sell it for roughly what you paid for it, maybe $200k if the market hasn’t changed much since you began this trick. This is a useful tax “loss” (which wasn’t really a loss, since you secretly paid it to yourself) that can offset your real crypto capital gains from other trading areas.
And then the person has $300K in wealth sitting in an anonymous account that they can't spend, because they can't explain where they got it from without explaining their ploy.
If you want to go that route, you could just as easily claim you lost $300K to a hack.
There are a couple things that the author misses about externally collateralized stablecoins and their ability to dictate or veto hard forks.
First the stable coin issuers would would have to collude with each other to have any chance of success. Just because Circle would want to go a certain direction doesn't mean that Gemini or Tether would also.
Second any fork from a stablecoin issuer would be inherently hostile, and the legitimacy of the resulting chain that they dictated would suffer. Users of the tokens on the 'blessed' chain could easily cause a run on token.
Between these factors, a centralized stablecoin issuer taking control over a chain like this would result in close to mutually assured destruction. Yes, many (but not all) defi applications in the original chain would be severely impacted, but the forked chain would have no legitimacy with users either and they would be quick to dump the issuer's stable coins as quick as possible.
The Steem/Hive fork following Justin Sun's attempted takeover is quite instructive on what can happen when a hostile takeover of a chain occurs.
> the forked chain would have no legitimacy with users either and they would be quick to dump the issuer's stable coins as quick as possible.
Wouldn't it have legitimacy with the actual fiat banking system though? TBH thats the side i'd personally pick if i owned significant eg USDC and it was only honored on one side of the fork.
Sure, but users don't have to pick. They could choose to recognize their eth on one chain and USDC on the other, just long enough to cash out their USDC for real USD from the forked chain (as long as Circle/Coinbase has liquidity to do so). At that point the user would be free to use a different stable coin if they chose.
Aren't stablecoins kind of pointless and dangerous?
We all know that Tether is a huge scam, and it underpins like 75% of Bitcoin transactions - meaning if it crashes it could take Bitcoin with it.
Adding onto that, stablecoins only really make long-term sense as havens for speculators and day traders. Do we really want to weaponize crypto markets like some kind of hyper-stock market?
I don't understand the argument that Tether crashing will take bitcoin with it.
If Tether starts to collapse, then the holders of the $73 billion tether are going to be desperate to dump it for something else. They may try to dump it for real dollars, but they may also dump it for bitcoin and other "real" cryptocurrencies.
Tether collapsing might even cause a massive bitcoin price pump.
no, it probably won't cause a massive pump... For every seller there's a buyer.. who would be in the other side of the trade if tether is deemed worthless?
A more probable scenario is that trading pairs against USDT will just get halted.
> who would be in the other side of the trade if tether is deemed worthless?
Predominantly retail traders who placed limit orders and didn't react to changing market conditions as fast as bots/institutions. Perhaps also some speculators who believe USDT may be able to reclaim the peg.
It would be a net positive for the space long term if people who confuse centralized stablecoins like Tether with decentralized "commodity" coins like bitcoin sell out completely. Concentrates bitcoin in the hands of stronger hodlers who understand what's actually going on and have a longer term investing thesis.
The price of a currency is completely relative to what you're measuring it against.
The US dollar has recently been experiencing a massive price pump priced in Turkish Lira. Does that make the dollar a bad currency? https://www.investing.com/currencies/usd-try
Your currency experiencing a price pump just means it's been collectively deemed to be stronger and safer than other currencies and undergoing a re-valuation. It literally happens to all currencies on the planet all the time.
In 5 years, the Turkish lira has lost ~70% of its value against the US dollar.
In the same 5 years, the value of bitcoin has increased 1,000% against the US dollar.
Care to expound on the consequence to the citizens of Turkey? Because that is often overlooked when using this glib analogy.
I'll do it for you: your argument is meaningful at the expense of the livelihood of millions of people. BTC is a money laundering mechanism, the economy of Turkey is made of real people. The two are not comparable.
Alternatively, the US dollar gained ~300% in value against the Lira. You really trust something that volatile?
Turks who chose to trust their monetary savings in Lira are doing terrible. Their savings have been destroyed.
Turks who chose to trust their monetary savings in Dollars are doing ok. They're still getting debased, but slower than their fellow citizens. And relative their fellow citizens, they're doing amazing.
Turks who chose to trust their monetary savings in Bitcoin are doing incredible. They took a risk trusting something that many smart people say is dangerous and isn't worth trusting, and they've been radically rewarded for it. Their savings can't be debased and faith in the currency is only growing, even if it's happening in volatile fits and spurts.
Bitcoin is certainly used for money laundering, but so is every other currency. Banks have repeatedly been caught aiding criminal organizations. You're conflating some people using a tool for bad things with the tool itself being necessarily bad. It's not a good argument.
The bitcoin economy is also made of real people, like myself, who work a real job and pay my taxes, but choose to trust my savings in money that can never be arbitrarily debased by easily corruptible humans.
When the money system seized up post Bear Stearns, money laundering was what saved a lot of banks. Illegal money was the only liquidity still being pushed through the pipes while all the other valves seized up.
A CBDC (Central Bank Digital Currency) backed by a money market, and a hybrid public-private partnership between the govt and thin banks would have the stable nature of a currency while eliminating much of the inefficiencies in the current TradFi and cryptos.
So.. go back to the old system? Keep the same corrupt people in power, inefficient systems that promote the production of nothing, making the rich richer...
Crypto assets? Over-collaterized? That really sounds like something that works, until it doesn't. That is sometime in future when market crashes and everything comes down...
To be fair, that's true of any collateral. Housing markets can crash, countries can have hyperinflation, diamonds could flood the market, etc. Gold's sorta safe, unless we find a huge new source, or people stop caring about it beyond its manufacturing uses.
But yeah, crypto collateral for crypto is a bit of an "if we die, we die together" decision.
Stablecoins are pegged to FIAT currency. They serve as an on-ramp into the crypto ecosystem.
Backing stablecoins like Dai with cryptocurrency instead of fiat is super dangerous because you need FIAT in a exchange crisis, not cryptocurrency. If you're trying to keep a 1:1 peg of Dai:USD, but you don't have dollars and only have crypto, then how are you possibly going to maintain that peg? Sell crypto for dollars on a different exchange and use that to maintain the Dai peg?
For me this is the single most important aspect of cryptocurrency. So long as you can create "stablecoins", or as I call them - "bitcoin standards", those bitcoin standards can quickly become fractional reserve banking, and when the fraction is 0, you get undefined banking, which leads us directly to wildcat banking that Tether exemplifies.
To believe in cryptocurrency means to believe in a world where stablecoins are outlawed and cryptocurrency is not, if that is even possible. When most of the value of cryptocurrency comes from it being impossible to kill, it makes it impossible to kill the stablecoins that can endlessly corrupt even the purest of systems.
I think the real problem these things need to solve is proof of time. The big issue with digital currency is double-spending. To get around that the first spend is generally considered the real one, but proof or work, stake, or other are used to indirectly time stamp a transaction. Bitcoin isnt a distributed ledger, it's a distributed notary. Everything (not just currency) will change when (if) a verifiable time stamp becomes available.
I strongly sympathize with the following observation:
> The way altcoins market themselves, generally, is to highlight the shortcomings of Bitcoin as though it were old tech or “Boomer coin”, and then explain how they are better than Bitcoin.
> When you dig into them, however, it turns out they are making tremendous trade-offs in one area to achieve additional capability elsewhere. They are sacrificing some degree of security, decentralization, auditability, and so forth, in order to achieve things like more features, more speed, or more throughput.
It is exceedingly rare to see altcoins describe the tradeoffs they made in honesty.
>Since they don’t need to expend resources to stake, they can simply increase their overall staking amount as they earn ongoing coins from staking rewards, and exponentially grow their influence on the network over time, forever. Network dominance tends to lead to more network dominance, in other words.
So, literally like reinvesting profits in proof of work?
In PoW centralization forces are way, way worse for two reasons.
The first is because there are infinite economies of scale: as any mining operation grows, costs per hashrate drops. The starting point right now is a person mining at home, paying residential electricity prices and using air cooling, with an asic bought from an external supplier at a high markup. The end point is a mining company that uses its own power plants and its own chips, with custom made power supplies and cooling that potentially reuses the heat in some way.
The second is that mining is vulnerable to forced exclusion that can increase revenue per hash by orders of magnitude: one that's consensus based, and another economically based which can force a consensus-based exclusion.
Controlling 51% of hashrate means that every other miner can be ignored, almost doubling revenue per hashrate. However, it's actually worse - because as competitors close, the dominant entity can reduce its active hashrate to a level just above remaining competitors, until nobody else mines, at which point mining can reduce to a very low level, just enough to keep random small miners from winning. In the case of an attack full hashrate is utilized, ensuring it fails. By the virtue of nearly ~100% of revenue being profit, the entity can amass and unassailable amount of idle mining hardware.
Economic exclusion means that it's possible to intentionally mine at zero profit to drive difficulty too high, ensuring others turn off. It's a strategy for a biggest miner that doesn't have majority of mining hardware, but by the virtue of being the largest entity has the lowest unit costs.
Of course, such an entity would have absolute censorship power.
It's the lowest energy point of the system - because while it's in principle possible to replace such an entity, it can be only be done by an even bigger entity, only changing the name at the top, but still retaining full centralization.
Those design flaws ensure PoW is certain to centralize, given time. The process is already well advanced - it started with individuals mining on their home pcs. Now miners are buying power plants.
PoS has next to zero economies of scale (just the negligible fixed cost of a computer used for staking), and there's no potential of forced economic exclusion - running cost are negligible, so while more stakers mean profit rate goes down, it can never force a loss. Additionally, while it's not implemented yet (at least I'm not aware of anything), the fact it's a semi-synchronous protocol also allows for automated censorship detection - with appropriate punishments. That's because active nodes would be able to see correct messages that should have been included, but aren't. This is fundamentally impossible in PoW, as it's a fully asynchronous consensus system.
Socially, PoS is as decentralized as coin distribution - which for some networks is a joke - especially Solana which only sold 1.6% of its initial supply to the public - probably the most centralized L1 coin in existence, controlled by just few VCs. Ethereum sold 83.33% of its initial supply (72M) in a public kycless sale, since then 42M eth have been mined. Supply is very well distributed among thousands of mostly tech nerds that bought before the current boom. As recently as in March 2020 one eth could be bought for $90. This is the most perfect population achievable for resistance to government interference.
In contrast, for already mentioned reasons, mining is already controlled by big companies.
Censorship is a more realistic risk from regulations forcing miners to censor. With PoW, there's no defense except moving to a different country - because it's impossible to hide warehouses with industrial power connections, not to mention power plants. In reality, as long as regulations don't kill the network outright ('just' an OFAC blacklist, freezing coins from ransomware, theft, other criminal acts) - and these regulations are enforced in places with cheapest available electricity - miners would comply. Once those miners attained a sufficient majority, laws would force them to orphan non-compliant blocks.
PoS staking is trivial to hide - it's just a computer with a network connection. The whole network could be made anonymous by utilizing onion or garlic routing. Regulations would be impossible to enforce.
In conclusion, PoS is superior to PoW in every single fundamental factor mentioned in the article, especially censorship resistance.
I don't agree that complexity itself is a factor for or against: complex things are certainly harder to build, but once finished and proven to work that becomes irrelevant - only the functional differences remain.
There's only one real advantage of PoW over PoS: PoW is a coin distribution method, while PoS isn't. However, 90% of all bitcoins are already mined, so that argument is already very weak and becomes weaker with each day.
At the end, these discussions are for nerds - the average person may just get the impression that 'person X is saying PoS is less secure' and be wary for a while, but given enough time of working well, ~nobody is going to care about the anti-PoS position.
Additionally, belief in PoW is economically self-punishing: mining costs billions per year, ensuring that PoS supporters, as a group, are getting relatively wealthier to PoW supporters. A cost difference of double-digit billions per year is very hard to sustain over longer periods. It also means that a PoS network can continue working with next to zero buyers - while below some level PoW becomes hopelessly insecure (see eg. 51% attacks on ETC) - making PoS much more resilient to economic shocks.
This is a great post but I have one disagreement about proof of work. At the point that one entity controls 51% reliably and consistently, presumably users abandon the cryptocurrency altogether. So any discussion of what the steady-state looks like after that seems pointless.
If so, the profit from a 51% attack would have to be taken very quickly during an initial double-spend, which limits the incentive to do it. Unfortunately, returns to scale, as you mentioned, still can mean that mining can trend toward an oligopoly. And that could have pretty bad effects if the biggest miners collude in ways that users don't like, but that aren't bad enough to drive them off the currency completely.
>At the point that one entity controls 51% reliably and consistently, presumably users abandon the cryptocurrency altogether.
Why? There are many people that would even welcome a fully government compliant mining entity. The 'business types' like Michael Saylor. He co-founded 'Bitcoin Mining Council' which is a perfect foundation for a mining cartel. Another cofounding member is Marathon - which is already censoring bitcoin blocks according to OFAC sanctions list.
Some old idealistic bitcoin would maybe sell, but that would be the extent of a negative market reaction.
Ironically it's turning out that banning mining in China greatly accelerated centralization, because cartelization of Chinese and non-Chinese miners would be hard to achieve. Contrary to China, America thinks it has global jurisdiction, so it's possible it may try to enforce future mining laws even on foreign miners. While a miner company in eg. Kazakhstan won't be closed outright, it would mean that owners of that company would risk extradition to America if they traveled to most Western and America-allied countries. Easier to just comply. Electricity in Europe is too expensive for it to matter, so mining in America naturally dominates.
I don't actually expect that to happen, because I think bitcoin will become irrelevant long before those slow trends manifest in censorship enforced by orphaning non-compliant blocks, but in the absence of that, it looks virtually certain that the mechanisms I described would manifest as an American government-sanctioned entity that every miner, globally, has to join and comply with all rules or get its blocks orphaned.
One of the most insightful and nuanced analyses of the blockchain space I've read in years. Some highlights:
---
"When a hard fork happens, stablecoin custodians cannot recognize both sets of tokens as redeemable for their money, since there are now twice as many total tokens (two full sets, one for each fork of the blockchain). They have to pick which blockchain is the valid one in their eyes, for which they accept redemptions of their tokens for money. And whichever one they don’t recognize as valid, has its DeFi and other stablecoin value eradicated."
---
"The biggest challenge with these proposals is that the more features you add to a blockchain on the base layer, the less “small and tight” it is, and therefore the less decentralized it tends to be.
The question then becomes, are there shades of partial-decentralization that people will accept, in exchange for more features that the database can offer? And can those partially-decentralized blockchains survive attacks, disagreements, and other tests over the long term?"
---
"And that’s not to say that all of the liquidity and price action is fraud. I don’t know how much is. It’s simply that, with the technology as it is, it is very difficult to distinguish what percentage is fraud and what percentage is real, and rising price action based on fraud can temporarily bring in real demand liquidity, making the difference between the two rather murky. This is not much of an issue for large cap liquid tokens but it’s potentially a big issue for non-fungible tokens."
---
"Ethereum’s proponents often criticize (rightly) Solana as being too centralized, as their key defense for why Ethereum is better than Solana. But that puts Ethereum in a tight spot, because Ethereum’s proponents then have to criticize Solana as being too centralized, while also defending the fact that Ethereum has these centralized attack surfaces and greater complexity compared to Bitcoin. In other words, it has to justify what the right level of partial-centralization and partial-decentralization is, and that it has achieved this sweet spot."
---
"The way altcoins market themselves, generally, is to highlight the shortcomings of Bitcoin as though it were old tech or “Boomer coin”, and then explain how they are better than Bitcoin.
When you dig into them, however, it turns out they are making tremendous trade-offs in one area to achieve additional capability elsewhere. They are sacrificing some degree of security, decentralization, auditability, and so forth, in order to achieve things like more features, more speed, or more throughput. And now the same thing is happening to Ethereum; newer smart contract chains offer greater efficiency in exchange for more centralization, and criticize Ethereum for not sacrificing more decentralization to scale faster."
For a consumer to participate in PoW based on current miners it seems like they need to buy perpetually out-of-stock specialized ASICs for a sunk cost of $10-15k with the expectation that they'll break even in about a year and probably need to refresh in 3. The hardware management aspect as well as the variable cost of electricity seems to incentivize centralization of mining significantly.
Being able to standup a staking node with commodity hardware seems far more accessible.