Ethereum (ETH) will switch to in August, if everything goes according to plan Proof-of-Stake† According to many, a big win for Ethereum because it reduces the energy-intensive Proof of Work leaves behind. Personally, I therefore disagree with it for several reasons and during the Oslo Freedom Forum was described excellently by several participants during a panel why Proof-of-Stake is not a solution in the long term.
All existing systems already run on Proof-of-Stake
An important argument against Proof-of-Stake is that all existing systems that run on a stakeholder basis are already essentially Proof-of-Stake. Systems in which the monopolist or the one with a majority is in control have existed since time immemorial. Within a Proof-of-Stake system, those with the largest stake determine what the right database is and the database determines who the largest stakeholders are. Especially the large exchanges that hold huge amounts of tokens for their customers find themselves in a terrifying position of power in Proof-of-Stake systems.
Proof-of-Stake is in a way very much like a business. Once you own the majority of the shares? Then no one can ever hurt you again. If a government or combination of governments manages to confiscate all the ethers of the exchanges, then they can control the project. They don’t even have to take ownership of the actual owners for that. This is not possible within Bitcoin (BTC). After all, anyone can buy hardware to join the war for the most hash power to participate. Someone who now has or comes close to having a majority, has to keep buying more hashpower to stay in that position.
If you have the majority within a Proof-of-Stake network, then in theory you are in charge forever. In my view, that is one of the major weaknesses of Proof-of-Stake, in addition to the fact that such systems are often extremely complex and can be full of errors. “Proof-of-Stake is how SWIFT works, how PayPal works and how banks work. These are all Proof-of-Stake systems,” says Nic Carter about Proof-of-Stake.
Energy component creates money without trust
The energy consumption of Proof-of-Work plays an important role within the consensus mechanism. To find new blocks you cannot ignore the energy consumption. Work has to be done to earn bitcoin. All the work done by miners in the past forms the defensive wall, so to speak, that makes bitcoin so powerful. Do you want to adjust the transaction history? Then you have to find a way to do more work than the entire network has done in history.
Within Proof-of-Stake there is no such connection with energy. People are arbitrarily appointed to produce the next block. However you look at it, this brings the human aspect back into the picture. The element of trust returns. In theory, it is possible to present a blockchain with a completely new history and agree with the majority that this is indeed the new history of Ethereum. That is very simplistic, but Ethereum is not protected by the wall of energy that protects Bitcoin.
“Bitcoin without energy is like airplanes without the ability to fly. You thereby gain the key to innovation and what gives it its beauty,” said Lyn Alden during the Oslo Freedom Forum about Proof-of-Work.
1/ Why doesn’t #Bitcoin move from proof-of-work to proof-of-stake?
A panel yesterday at the Oslo Freedom Forum #OsloFF explained PoW vs PoS in the best way I’ve seen in a while.
A thread with quotes
— Namcios (@namcios) May 25, 2022
As soon as someone has a majority within Proof-of-Stake, it is impossible to turn around.
Disclaimer: The opinions and statements shared in this column are the author’s only and do not necessarily reflect or represent the opinions and views of Crypto Insiders.