Over the last few years, there’s been a lot of projects, both public and private, that are attempting to create a next-generation blockchain or something better than Satoshi’s Bitcoin. A great majority of these projects have condemned proof-of-work (PoW) cryptocurrencies because they think they waste resources, and many of these new blockchains have chosen to use a proof-of-stake (PoS) system. However, PoS has many flaws and introduces a distribution process that advocates an ugly planned economy that’s propagated by ancient thinking and basically the old banking system.
The Cost to Attack Proof-of-Stake is Minimal Because There’s no Incentive and ‘Nothing at Stake’
On October 31, 2008, Satoshi Nakamoto released a paper that described a capitalistic system that essentially solves the notorious Byzantine fault tolerance problem. Bitcoin’s PoW creates a portrayal of mass computational decision making by allowing a system that enables an extremely competitive “one-CPU-one-vote” model. PoW produces a robust process that creates an incentivized race towards computational power to earn cryptocurrencies.
We can see that the system has worked for almost ten years now since Satoshi announced the protocol. Now individuals and large organizations are building multi-million dollar facilities to harvest this innovative and hard money. Proof-of-stake, on the other hand, brings a distribution protocol that’s not only centralized, but there is very little cost associated with annihilating these networks. Cost and profit is everything in a fault-proof computational protocol. Because a PoS system introduces a consensus (voting) system with no resources, there is no opportunity cost associated with the protocol, a serious problem known as ”nothing at stake.”
Centralized From the Start With False Promises of Fair Distribution
In contrast to PoW, a proof-of-stake (PoS) system is a protocol that forges blocks by the amount of ‘stake’ each participant in the network holds. Basically, proponents believe the consensus model can offer a better form of distribution and because there are no mining rigs ‘wasting resources,’ it may be friendlier to the environment. However, unlike reading Satoshi’s white paper, immediately after studying each type of PoS coin one can notice these projects are riddled with red flags. For instance, while some of these networks use a hybrid PoW algorithm prior to adding a staking functionality, a great majority of PoS currencies are created in private prior to launch, and some don’t have a fixed supply. How is this any different than the fiat system and central banking?
Unlike Satoshi’s laissez-faire injected peer-to-peer cash system, the creators of PoS have created a controlled and regulated environment that tethers so-called ‘fair distribution’ into the hands of a chosen few. We know the Bitcoin network incentive encourages miners to be ‘honest,’ by providing them with a system that makes it hard to assemble more mining nodes than everyone else, and trying to cheat the system is too risky and too expensive. Whereas PoS networks try to pre-determine everything like a central bank and will ultimately fail at long-term consensus, because ‘larger stakes’ will always be more powerful than the ‘lesser stakes.’ If these larger stakes collude at any time, then malicious activity could take place making the protocol’s security soft and vulnerable at all times.
Bitcoin Miners Will Not Undermine the Network if There’s a Chance of Destroying Their Own Wealth
There’s nothing new to proof-of-stake and these systems represent the crony bureaucratic monetary process that rules the world today. There are promises of low energy cost, but at the same time, these PoS protocols introduce a slew of ways people can cheat and manipulate the network. Sound familiar? Just like central banks, PoS networks introduce principal interest to a chosen group that can produce artificial ‘busts and booms’ within the cryptocurrency’s market life cycle. And just like operations at the Federal Reserve, proof-of-stake coins can use all types of smoke and mirrors to produce a so-called ‘honest system.’
The Bitcoin mining incentive system works because miners establish a connection with reality — Profit and the ultimate ends, so miners will always play by reality’s rules. Satoshi said; “
He [mining node] ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.
Understanding this statement illustrates just how much economics are involved with Bitcoin and why Satoshi got it right.
So many people to this very day think the Bitcoin formula is wrong. Unfortunately, the critics just don’t understand its relationship with unfettered capitalism. There’s a lot of reasons why people believe PoS is revolutionary, but the biggest reason is that most people cannot remove themselves from the old financial system of thought. Thus the validation of a miner’s reality (acquiring more bitcoin profit) will always determine what miners ought to do — Maintain a robust and honest computational system, unlike anything that’s been created so far.
What do you think about the flaws associated with proof-of-stake networks? Let us know what you think about this subject in the comment section below.
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