How the incentives of proof-of work are fairer than proof-of-stake

The innovation that drives energy innovation is proof-of-work. Proof-of-work ensures that the wealthiest among us will retain control over others.

This opinion editorial is by Mickey Koss (West Point graduate with an economics degree). After serving four years in the infantry, he was transferred to the Finance Corps.

As Ethereum moves to proof-ofstake consensus, I am struck by the number of articles that claim a 99% decrease in energy consumption. These claims are false and counterproductive, despite being true.

Incentives for Proof-Of–Stake

To be able to validate transactions, proof-of-stake validators must lock up several coins. This does not eliminate the need to mine and reduces power consumption. However, the incentives are such the Ethereum network will become increasingly centralized.

Stakers will be paid a cut of transaction fees and the new ether issuance, which will essentially make a portion of their stack liquid. Staking is encouraged by the counterparty risk-free yield. Earn more if you stake more.

The more you earn, however, the more stake you can place. This positive feedback loop ensures that the biggest bag holders will always be ahead in terms of accumulation. Proof-of-stake is a mechanism that allows the largest holders to exert greater influence on the network. 32 ETH is required to stake ETH as a validating node. Due to the counterparty risk-free yield, the largest bag holders will be able and willing to have the most nodes in order generate the highest income. They can gradually but surely gain more control.

Combining this with the inflationary claims of their fee burning, the price of ETH may well rise in fiat terms. However, the less affordable ETH will make it more difficult for average plebs to start a staking network.

Staking is complex and risky, which will ensure that there is a constant stream of outsourcing demand. EthHub states that beacon nodes are high-performance, highly-available platforms. As such, they require server-grade CPU/SSD/networking connectivity.

Inactivity risk is reduced, and slashing risks are combined with ETH staked. This means you can face monetary penalties if your internet connection is lost.

This means that most of the staking will go to Coinbase or other large exchanges. I don't have server-grade equipment that guarantees 24/7 internet. Do you?

The more centralized the staking supply, the easier it is for governments to coopt and censor. It may not happen immediately, but it could happen in the future. This alone should be enough to cause concern.

Incentives for Proof-Of Work

Real-world inputs are required for proof-of-work. Innovation is encouraged by the high cost of electricity as miners find new ways to harness it.

These are just a few of the many things that can be said, but the proof is already in the pudding. Already, companies are working with gas companies and landfills to cap methane and other waste gas sources and reduce greenhouse gas emissions. The economic viability of this technique has made it possible to harness the thermal energy stored in the ocean by mining. Although there are many stories similar to this, the benefits are obvious. The Bitcoin mining economy is driving innovation toward a cleaner, more sustainable energy future.

Variable costs can be a blessing and not a curse. Proof-of-stake owners may not have to pay income taxes, but proof-of work companies often have to sell to pay for a multitude of capital and input costs. This allows for a more consistent distribution.

Bitcoin's protocol is more fair than the others. A node can be run by anyone for $250, and they can validate their transactions. At the time of writing, the 32 ETH needed to spin up a new node cost about $50,000. This puts it out of the reach of most people outside of the Western 1%.

The innovation that drives innovation in energy and new ways to use wasted resources is called proof-of-work. Proof-of-work ensures that the wealthiest among us will continue controlling those who won't be able. This sounds like an even more complicated version of what we have.

This guest post is by Mickey Koss. These opinions are not necessarily those of BTC Inc. and Bitcoin Magazine.


By: Mickey Koss
Title: How The Incentives Of Proof-Of-Work Are More Fair Than Proof-Of-Stake
Sourced From:
Published Date: Sun, 18 Sep 2022 11:00:00 GMT

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