Whether pos can replace pow is still a mystery?

Inside and outside the cryptocurrency circle, more and more people hope that Proof-of-stake (PoS) can not only contribute the advantages of cryptocurrency to us, but also avoid the problems of Proof-ofwork (PoW). energy consumption properties. This wish will eventually come to nothing, because Paul Sztorc discussed this issue in "nothing is cheaper than proof of work" in 2015 (Chinese translation). PoS just obfuscates costs, but it is impossible to eliminate them. Here, I want to talk about why PoW is like a democracy: it is the worst way, but it is the only one that works.

This article does not discuss whether the security of cryptocurrency is "worth" paying such a large price, but only focuses on whether PoS is an efficient method.

The best cryptocurrencies use the cheapest way to get security

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Axiom #1: The most environmentally friendly cryptocurrency should be the one that buys security most efficiently.

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Axiom #2: If a cryptocurrency buys X dollars worth of security, its validators (for rewards) will spend a total of X dollars worth of it.

This is an unbreakable economic law of competition. Any miner who spends less than he gets will be defeated by those who are willing to spend more, and any miner who spends more than he gets will eventually go bankrupt. A blockchain that costs X dollars to secure will eventually result in miners spending X dollars to secure the blockchain. The weighting of different types of expenses may vary, but all expenses will add up to X dollars. This difference is the same as a catty of cotton and a catty of iron.

Electricity is only part, not all

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Axiom #3: To consider a system's carbon footprint, you must consider all aspects of validator spending.

Each of these three types of activities involves waste. It is inevitable that there will be orphan blocks in the Bitcoin network, and the energy to dig out this orphan block will be wasted. Some hardware is built, but the operating efficiency is not perfect. Some operating expenses are necessary, others are simply a different place to drink your tea. The more closely an expense is tied to the actual work of validating the blockchain, the more efficient it is in exchange for blockchain security. Similar to the fact that machines are more efficient when they have fewer degrees of freedom: one more component means more useless work. The same is true for economic systems - the more structure there is, the less efficient it is.

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Axiom #4: The more an expense is related to the actual act of validating the blockchain, the more effectively it buys security.

So, sometimes you see people talking about ASIC 1, thinking that they corrupt the environmental impact of a cryptocurrency, but it's actually the opposite. The specialization of mining equipment enables a unit of hardware to generate greater computing power, which means that the security budget of the blockchain is spent less on hardware and more on electricity. This is good for efficiency - ASIC mining is fundamentally cleaner than traditional CPU mining because ASICs are more efficient (aka cheaper) at converting energy into security.

This is why people misunderstand the environmental impact of "Proof-of-space" cryptocurrencies such as Chia (which use memory rather than computing power to validate blockchains). Using hard drives as a scarce resource to generate security does not reduce costs, it just diverts the blockchain's security budget from electricity to spend on hardware. If you measure the carbon footprint of cryptocurrencies by looking only at electricity consumption, it looks like we've made huge strides — but if you factor in hardware spending, it's a huge loss of efficiency.

There are a lot of hard drives left unused in the world right now, so Chia is sort of getting a little subsidy. But don't expect this to last forever. When some kind of cryptocurrency succeeds in monetizing computer memory, what happened to GPUs will be repeated in related hardware. What's more, in the end the system will be worse than an equivalently sized but PoW-based system, because the security budget is spent on developing hardware, which is less efficient than a security budget spent directly on electricity.

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Conclusion #1: The most environmentally friendly cryptocurrencies are those that spend their security budget on things most closely related to verification efforts.

Locked capital is also a real expense with real overhead

Chia and other blockchains that use Proof of Space are relatively easy to compare to PoW because you can easily imagine old hard drives filling landfills, so you can easily be sure that they are "really" good for the environment influential. But losing capital also has real environmental consequences. Because that money could be spent on carbon capture technology and carbon efficiency research, and so on. People "feel" that they are free (not consumed) simply because humans are not good at thinking about time-value. If capital is truly free, miners can get it without paying anything.

Sometimes you also see people claiming that Proof of Stake is wasteful from an individual point of view, but economical from a social point of view, as Dan Robinson said:

- "Suppose your religion requires you to prove your sincerity by sacrificing yourself. You can throw a cow into a crater, or you can gift it to a stranger. Both are equally costly to you (thus satisfying the precept requirements), but the social cost of the first is higher." -

The truth is just the opposite. Locking up capital is not a waste for you personally, because PoS's staking algorithm compensates you - the capital is not thrown into a volcano, it earns you a yield, at the expense of other ETH holders. Locking up capital is not the same thing as giving it to a stranger, because there is no stranger to receive the funds. Validators don’t “distribute their capital equally to everyone”, in fact everyone pays validators equally for their work (in the form of newly mined ETH). And, thanks to Axiom #2, we know that validators are paid exactly the cost of those funds.

Locking up capital, on the other hand, is socially wasteful because it can no longer be used to build factories, fund research, and do whatever is good for society. Consider the financial crisis of 2008 - no factories were destroyed, no houses collapsed, no material assets were lost. The consequence is just a loss of capital -- but that's still a very, very heavy social cost. Capital is a special form of information accumulation, which condenses information about the optimal allocation of resources. Losing information is not the same as losing something tangible, but it is a loss just as much, if not worse.

So, keeping Axiom #1 and Axiom #2 in mind, a fair comparison of PoS and PoW should look like this:

Proof of Stake does not (and cannot) eliminate miner expenses, it just converts the portion of PoW system expenditures on electricity into capital expenditures. How the externality of locked capital compares to the externality of electricity consumption is a complex and subtle issue - but unfortunately, proponents of PoS systems often pretend that electricity is the only price (system operation) that needs to be paid:

- This intentionally misleading comparison, taken from the Ethereum Foundation blog. -

disappointing. The Ethereum Foundation is very clear that the "average energy consumption of a single transaction" is a completely meaningless indicator, so using this data is intentional deception. The point is not at all whether a PoS system uses less energy - it does, but that's not the whole story. The meaningful discussion is: is it better to consume capital, or is it better to consume electricity? Any theory that supports PoS without discussing the cost of capital is fundamentally wrong.

Efficiency Comparison: Staking vs. Mining

In the PoW/PoS debate, PoS supporters often have an advantage: there has never been a fully decentralized proof-of-stake system. This also means that PoS supporters can imagine how efficient and elegant the final solution can be. None of the known mining algorithms are perfectly efficient (e.g. the "selfish mining" problem), and there is also no reason to believe that the PoS system will be invulnerable - however, until the solution is finally fully formed, PoS supporters Regardless of the specific strategies that verifiers might use to cheat the system.

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Observation #1: PoW is tightly coupled with security. But it's unclear how far PoS can go.

Externalities: Staking vs. Mining

Assuming that we all agree that from the perspective of security efficiency, the efficiency of locking capital and mining is the same, then there is only one problem left, which is "externalities". This is where I think reasonable people can still disagree on the trade-offs.

In the short term, the PoW system has to compete with other projects for energy use, but in the long run, it will incentivize the development and production of cheap energy, which will gradually reduce the cost of electricity, bringing benefits to everyone (whether financial or environmental protection). Cheap electricity also leads to new technologies and more production.

Proof-of-Stake competes with other projects for capital in the short term, but it does not incentivize the creation of more capital, so it gradually increases the cost of capital. Higher capital costs mean fewer projects—fewer factories, less research.

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Observation #2: Proof of Work encourages future investment. Proof-of-stake curbs exploration.

PoS doesn't even work

As we said earlier, we don't yet know whether a fully decentralized proof-of-stake system can be realized. Existing cryptocurrencies that advertise themselves as PoS systems basically rely on some centralized coordinator or "checkpoint". Since Ethereum started in 2015, they have been working hard to convert to a fully decentralized PoS system, and until now, they have only launched Phase 0, which only supports validator pledges... Once you lock the money in , you can’t get out, and you can’t spend money.

There are many debates about whether PoS systems can be sufficiently secure (see "Long-range attack", "nothing-at-stake", "work spans time/stake is opposite"). These are open problems for research, not to-do lists for implementation. We don't know how long it will take to find a good solution, or even doubt whether there is a good solution. Check out this 2017 post:

PoS might "work", but in a pathological way. PoW favors those with access to cheap electricity and rewards them with capital. Not exactly equal, but not caught in a positive feedback loop. PoS favors those who can get capital cheaply and rewards them with capital, creating a cycle. Rich people get richer, and the richer you get, the easier it is to get richer.

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in conclusion

in conclusion

• Axiom #1: The most environmentally friendly cryptocurrency should be the one that buys security most efficiently.

• Axiom #2: If a cryptocurrency buys X dollars worth of security, its validators (for rewards) will spend a total of X dollars worth of it.

• Axiom #3: To consider a system's carbon footprint, you must consider all aspects of validator spending.

• Axiom #4: The more an expense is related to the actual act of validating the blockchain, the more effectively it buys security.

• Conclusion #1: The most environmentally friendly cryptocurrencies are those that spend their security budget on things most closely related to verification efforts.

• Observation #1: PoW is tightly coupled with security. But it's unclear how far PoS can go.

• Observation #2: Proof of Work encourages future investment. Proof-of-stake curbs exploration.

• Observation #3: Proof of Work exists and has proven itself to continue to grow. But proof of stake is still an unsolved problem.

Unfortunately, after careful examination, we know that most of the "advantages" of PoS are just glossy, and there are many significant open challenges. At least for now, it's a utopian fantasy rather than a realistic option. Although PoW has shortcomings, it is still the best known solution (in fact, the only solution) to build a network that does not need to trust a centralized authority. footnote

• Application-specific integrated circuit: a customized computer, but it can only do limited types of calculations and nothing else (ASICs developed for mining with specific algorithms are therefore very efficient in mining).

• If we look at human nature realistically, the only way to reduce consumption on a global scale is to increase technology or reduce population. Any philosophy that advocates a straightforward "consumption reduction" is either very naive or very scary.