Normally Bitcoiners don’t care too much about what goes on in shitcoin-land, but now that Ethereum has merged to Proof-of-Stake (PoS), there’s been quite the buzz on Bitcoin Twitter. Of course the Bitcoin network itself will remain unaffected, but I think this “upgrade” is still worth paying some attention to. Now that Ethereum has cleansed itself of the “dirty” and “wasteful” externalities associated with Proof-of-Work (PoW), we can expect the gloves to come off in the narrative war, and I think Bitcoiners should be ready to punch back.
Nicely done. I"ve always had my misgivings about PoS, having used a few chains that always had consensus problems and siezed up at random times, but you really dive down on why PoS is fundamentally a flawed direction to go in.
I see why Vitalik and the like are supporters of it -- it aligns with their ideology of control and group-ganging to push people to do what they want. The DAO "hack" rollback, for example showed that Vitalik really didn't care about the users (very few voted, if at all), and he just unilaterally decided for the whole chain.
This is one of the first articles I've read that goes down to the protocol level to explain exactly what is going on, and even though I thought PoS had a "who watches the watchmen" kind of problem it is much worse than I thought when you get into Gasper and its "did enough time pass? Okeydokey!" kind of decisions that are potentially exploitable.
First I want to tell you that I'm impressed reading such a good summary of Ethereum PoS from a bitcoiner without him dunking on Ethereum in every second sentence.
At second I want to add or dispute some things from an ethereum point of view:
You could have set the inactivity leak in relation: If a validator is still 1/2 of the time online (offline from time to time) he is still net positive (if the network isn't considered under attack). I would assume that this is economically "better" compared to a mining farm which is half of it's time offline.
The objective truth of Bitcoin's PoW also has bootstrap issues. Actually - to be 100% sure - both systems require external information for confirmation if the "right reality" has been gossipped correctly. In Bitcoin you need to check if your node sees the chain with the highest PoW and in Ethereum you need to check if you are on the right "justified checkpoint". If Ethereum gets an alternate reality gossipped the node could at least detect that there might be a conflicting situation which requires user intervention while bitcoin (as you stated) knows for sure which the right chain is.
PoS also has some advantages. In a scenario where the gossip protocol gets censored suddenly an attacker of an PoW network just requires little PoW (let's say 1/6th of the world) to trick everyone into thinking that anything is allright for a few hours. (Because it's normal to sometimes have a block interval of one hour.) In PoS you would be required to crack the private keys of the next validators which most likely is more PoW than the whole BTC chain has accumulated up to now.
Also, PoS has no security budget problem which BTC may have within the next 4 halvings.
Additionally one thing about RANDAO (the "randomly" you did put into quotes): It's not only a really good source of randomness, it also is really random if you have at least one honest participant (which could be you). And it can be audited. So in the case I had to bet wither about the next bitcoin block hash or about RANDAO output against a powerful actor I propably would chose RANDAO.
I guess we can at least agree on that those are quite exciting times to see if Ethereum will make it or implode. :D
I entered PoS out of FOMO but deep inside I knew I shouldn't have. I regret it. This is my first hand testimony:
1) I can't get out until the Ethereum Foundation allows me to. Actually, the decision to keep reluctant validators locked in dilutes the rewards to other more engaged validators. No one should be forced to stay in a protocol they no longer agree with (Berlin wall, anyone?)
2) Everybody is running around in fear trying to comply with top down orders. Now they are scaring validators that if they all use Geth client, and there is a bug in Geth, they will lose their stake because of a massive fails increases the slashing. At any time there could be a bug in the clients, and you need to run to install the upgrade.
3) The hardware requirements of ethereum clients are ridiculous. You need 16GB+ ram and 2TB+ state of the art NVMe drive. So much for democratizing if you need 1500 USD to run a node (remember when they said that you could stake on a raspberry pi?). As in 2), the burden is on validators to upgrade their hardware.
4) Everybody is "trying to be nice" and putting this unbearable emotional narrative forward. There is too much emphasis on the community and everybody seems to agree with Vitalik. They clearly are ok with a benevolent dictator.
Agree on this article, BUT remember that this is not how real permissionless and liquid staking in Cardano works. Everything what you talk about in this article is not applicable to a much better and inclusive PoS system called Ouroboros.
"As the profitability of Bitcoin mining dropped in 2022, top crypto miners’ share prices have also fallen. Fortunately, Canaccord Genuity analyst Joseph Vafi says the most efficient Bitcoin miners are still turning a significant profit on their rigs."
“Most of the leading mining companies in our coverage have a relatively new fleet which can remain profitable at a much lower BTC price than current levels, as evidenced by a breakeven price of $7,000 to $9,000 for a majority of them for incremental hashrate output,”
It sure beats the paltry 4.48% APR from ETH Staking, that's for sure.... and BTC miners aren't stuck like they are...
An addendum post "Merge" -- CoinMetrics did an analysis and the average yield from staking is around 4.48% APR. Even with "priority tips" factored in, this only rises slightly. Inflation in the USA is officially at 8% -- but easily double-digits when calculated using older methods. This means our intrepid stakers are LOSING money by tying it up in staking ETH.
To the tune of anywhere from 4 - 10% depending on what numbers you use. And this was supposed to be the superior system? I wonder when stakers will realize the yield is garbage and try to get out.
Oh right, the staking mechanism is such that they trap people in that role for a good period of time, so even if they KNOW they're losing money -- they can't do anything about it.
Proof of Burn is a better iterative of Proof of Stake. The koinos.io team realized this and implemented it. You buy "virtual NFT miners" just like with BTC, which encourages long term good behavior. Lot's of great points in this article. I view ETH as an important milestone in smart-contracts, but will likely be irrelevant in 5 years. Solidity may also fade away as WASM gains popularity.
Nicely done. I"ve always had my misgivings about PoS, having used a few chains that always had consensus problems and siezed up at random times, but you really dive down on why PoS is fundamentally a flawed direction to go in.
I see why Vitalik and the like are supporters of it -- it aligns with their ideology of control and group-ganging to push people to do what they want. The DAO "hack" rollback, for example showed that Vitalik really didn't care about the users (very few voted, if at all), and he just unilaterally decided for the whole chain.
This is one of the first articles I've read that goes down to the protocol level to explain exactly what is going on, and even though I thought PoS had a "who watches the watchmen" kind of problem it is much worse than I thought when you get into Gasper and its "did enough time pass? Okeydokey!" kind of decisions that are potentially exploitable.
Again, great work.
First I want to tell you that I'm impressed reading such a good summary of Ethereum PoS from a bitcoiner without him dunking on Ethereum in every second sentence.
At second I want to add or dispute some things from an ethereum point of view:
You could have set the inactivity leak in relation: If a validator is still 1/2 of the time online (offline from time to time) he is still net positive (if the network isn't considered under attack). I would assume that this is economically "better" compared to a mining farm which is half of it's time offline.
The objective truth of Bitcoin's PoW also has bootstrap issues. Actually - to be 100% sure - both systems require external information for confirmation if the "right reality" has been gossipped correctly. In Bitcoin you need to check if your node sees the chain with the highest PoW and in Ethereum you need to check if you are on the right "justified checkpoint". If Ethereum gets an alternate reality gossipped the node could at least detect that there might be a conflicting situation which requires user intervention while bitcoin (as you stated) knows for sure which the right chain is.
PoS also has some advantages. In a scenario where the gossip protocol gets censored suddenly an attacker of an PoW network just requires little PoW (let's say 1/6th of the world) to trick everyone into thinking that anything is allright for a few hours. (Because it's normal to sometimes have a block interval of one hour.) In PoS you would be required to crack the private keys of the next validators which most likely is more PoW than the whole BTC chain has accumulated up to now.
Also, PoS has no security budget problem which BTC may have within the next 4 halvings.
Additionally one thing about RANDAO (the "randomly" you did put into quotes): It's not only a really good source of randomness, it also is really random if you have at least one honest participant (which could be you). And it can be audited. So in the case I had to bet wither about the next bitcoin block hash or about RANDAO output against a powerful actor I propably would chose RANDAO.
I guess we can at least agree on that those are quite exciting times to see if Ethereum will make it or implode. :D
I entered PoS out of FOMO but deep inside I knew I shouldn't have. I regret it. This is my first hand testimony:
1) I can't get out until the Ethereum Foundation allows me to. Actually, the decision to keep reluctant validators locked in dilutes the rewards to other more engaged validators. No one should be forced to stay in a protocol they no longer agree with (Berlin wall, anyone?)
2) Everybody is running around in fear trying to comply with top down orders. Now they are scaring validators that if they all use Geth client, and there is a bug in Geth, they will lose their stake because of a massive fails increases the slashing. At any time there could be a bug in the clients, and you need to run to install the upgrade.
3) The hardware requirements of ethereum clients are ridiculous. You need 16GB+ ram and 2TB+ state of the art NVMe drive. So much for democratizing if you need 1500 USD to run a node (remember when they said that you could stake on a raspberry pi?). As in 2), the burden is on validators to upgrade their hardware.
4) Everybody is "trying to be nice" and putting this unbearable emotional narrative forward. There is too much emphasis on the community and everybody seems to agree with Vitalik. They clearly are ok with a benevolent dictator.
Well, I should have known
Agree on this article, BUT remember that this is not how real permissionless and liquid staking in Cardano works. Everything what you talk about in this article is not applicable to a much better and inclusive PoS system called Ouroboros.
Wow great article. Could you do a comparison for cardano en xrp aswel?
52% ethereum blocks are already OFAC compliant and censoring all address related to tornado cash. You are absolutely right.
1. https://www.mevwatch.info/
2. https://cointelegraph.com/news/51-of-ethereum-blocks-are-now-compliant-with-ofac-standards-raising-censorship-concerns
From Forbes:
"As the profitability of Bitcoin mining dropped in 2022, top crypto miners’ share prices have also fallen. Fortunately, Canaccord Genuity analyst Joseph Vafi says the most efficient Bitcoin miners are still turning a significant profit on their rigs."
“Most of the leading mining companies in our coverage have a relatively new fleet which can remain profitable at a much lower BTC price than current levels, as evidenced by a breakeven price of $7,000 to $9,000 for a majority of them for incremental hashrate output,”
It sure beats the paltry 4.48% APR from ETH Staking, that's for sure.... and BTC miners aren't stuck like they are...
An addendum post "Merge" -- CoinMetrics did an analysis and the average yield from staking is around 4.48% APR. Even with "priority tips" factored in, this only rises slightly. Inflation in the USA is officially at 8% -- but easily double-digits when calculated using older methods. This means our intrepid stakers are LOSING money by tying it up in staking ETH.
To the tune of anywhere from 4 - 10% depending on what numbers you use. And this was supposed to be the superior system? I wonder when stakers will realize the yield is garbage and try to get out.
Oh right, the staking mechanism is such that they trap people in that role for a good period of time, so even if they KNOW they're losing money -- they can't do anything about it.
Is it true that the code necessary for stakers to withdraw their ETH "hasn't even been written yet"?? Am I the only one finds this concerning?
Proof of Burn is a better iterative of Proof of Stake. The koinos.io team realized this and implemented it. You buy "virtual NFT miners" just like with BTC, which encourages long term good behavior. Lot's of great points in this article. I view ETH as an important milestone in smart-contracts, but will likely be irrelevant in 5 years. Solidity may also fade away as WASM gains popularity.
Great article. PoW, PoS, what is next, Proof-of-Person?
Not all PoS is like this. It's very disengenious. Cardano uses Ouroboros that works completely differently for example.