Proof Of Stake Security Budget Failure – Bitcoin Magazine
This is an opinion editorial by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the infantry before transferring to the finance corps.
Ethereum founder Vitalik Buterin recently expressed concern about Bitcoin’s long-term security citing relative security budgets based on network fee structures.
These concerns are unfounded and structured on a false comparison between the two systems. Here’s why:
First, Ethereum’s proof-of-stake hardware and monetary requirements incentivize the centralization of efforts of service providers such as the major exchanges. Outsourcing poses a number of risks to include co-opting the network at the stroke of a pen by the jurisdictional authority where these entities exist.
Furthermore, in a world of unlimited fiat currencies, central banks and governments can also quietly accumulate a pile of ethereum and slowly stake their claim to complete and legitimate control of the network. Security budgets that consist only of monetary constraints do not matter in a world without physical scarcity.
Bitcoin is fundamentally different. Mining requires hardware and energy inputs, both inherently scarce to begin with. Collaborating on a network of scarce technologies and energy supplies makes the task infinitely more difficult to accomplish, especially in a covert manner.
In addition to this, proponents of this particular line of R&D completely ignore the positive externalities that energy on demand, or bitcoin mining, provides. I have already written a lot about this in previous articles such as “Who Says Bitcoin Mining Needs to be Profitable.” TLDR: Bitcoin mining does not have to be profitable in the traditional sense because of the incentives that different use cases produce; sometimes anything is better than nothing, especially if your energy was set to be wasted.
All in all, these concerns show to me a lack of creativity and foresight that indicates a status quo or fiat mindset. Proof-of-work is the innovation; Energy consumption is not just a feature, but an incentive, not a flaw in the system. Integrating proof-of-work technology and the energy industry is a natural fit and will only spur more adoption and more abundance for a better future for humanity.
The much talked about 99% reduction in energy consumption that ETH will experience, I believe will eventually lead to its demise. Proof-of-work maintains ties to the real world where incentives are stronger than coercion. Proof-of-stake chooses to cut these ties and motivates nothing but HODLing.
Energy innovation and integration will outcompete and out-incentivize the counterparty’s risk-free return in the long term. The need for innovation in the energy sector is becoming more and more obvious every day. Bitcoin and proof-of-work will inevitably shine in the coming years, helping to bring cheap and abundant energy to the masses. Gradually, then suddenly; a low time preference is all that is required.
This is a guest post by Mickey Koss. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
