1Sem.
Good contribution 👍🏼 But where I would at least like to initiate a discussion is your reasoning as to why Proof Of Work is better than Proof Of Stake. You write that Proof of Stake is worse because it has the risk of a centralized decision structure. My problem with these thoughts is that I think there are the same risks with proof of work. The limited energy required to mine bitcoins or validate transactions comes at a high cost, and thus offers the same risk of centralization in my eyes. In particular, if the barrier to entry continues to rise due to the high energy requirements, there will probably be fewer miners in the long term. And those that do exist will have more power in the network. So we have the same correlation between wealth and decision-making power here too. Or am I missing something with this thought?
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1Sem.
@SparOtter Thank you for your comment 🫶
With Proof of Stake, the person who already owns the most coins is rewarded.
This can be compared to voting rights in companies: The more shares you hold, the more influence you have. In Proof of Stake networks, the person with the most coins is favored because they are most often selected to add the next block and collect the reward. This leads to the rich getting richer and richer and thus gaining more power in the network in the long term.
An example with regard to Ethereum: validators can only be operated here if you own at least 32 ETH. As this is not feasible for many small investors, they give their coins to service providers. These service providers, who already manage large amounts of ETH, benefit all the more because they are selected more often due to their size, which further increases their "yield". The result? Over time, power becomes more and more concentrated in a few large players, leading to increasing centralization.
Importantly, once someone controls 51% of all ETH, they could manipulate the network at will, as no one can take that control away from them.
Bitcoin, on the other hand, is slightly different. Here, the miners have to expend energy -> the energy causes real costs. And all miners are in competition with each other. Only the miners who get the cheapest electricity are profitable. Energy is also distributed worldwide, which ensures that the network is not dependent on a single geographical or economic location. And most importantly, even if a miner were to control 51% of the hashrate today, they would not be able to maintain this control in the long term without continually expending immense energy and resources. If a miner does manage to muster 51% of the computing power (which is technically and economically virtually impossible), it would only have this control as long as another miner somewhere on the other side of the world does not plug in a new device :D
With Proof of Stake, the person who already owns the most coins is rewarded.
This can be compared to voting rights in companies: The more shares you hold, the more influence you have. In Proof of Stake networks, the person with the most coins is favored because they are most often selected to add the next block and collect the reward. This leads to the rich getting richer and richer and thus gaining more power in the network in the long term.
An example with regard to Ethereum: validators can only be operated here if you own at least 32 ETH. As this is not feasible for many small investors, they give their coins to service providers. These service providers, who already manage large amounts of ETH, benefit all the more because they are selected more often due to their size, which further increases their "yield". The result? Over time, power becomes more and more concentrated in a few large players, leading to increasing centralization.
Importantly, once someone controls 51% of all ETH, they could manipulate the network at will, as no one can take that control away from them.
Bitcoin, on the other hand, is slightly different. Here, the miners have to expend energy -> the energy causes real costs. And all miners are in competition with each other. Only the miners who get the cheapest electricity are profitable. Energy is also distributed worldwide, which ensures that the network is not dependent on a single geographical or economic location. And most importantly, even if a miner were to control 51% of the hashrate today, they would not be able to maintain this control in the long term without continually expending immense energy and resources. If a miner does manage to muster 51% of the computing power (which is technically and economically virtually impossible), it would only have this control as long as another miner somewhere on the other side of the world does not plug in a new device :D
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@stefan_21 Thank you for the detailed answer and explanation 🦦
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