Proof-of-Stake Future: Inevitability or Myth


The debate about Bitcoin’s Proof-of-Work being obsolete and downright harmful to the environment has been going on for a while. Alternative algorithms like Proof-of-Stake emerged aiming to solve the problems, but the solution to end the debate is yet to be found.

Vladimir Popov, the founder of Synergis and co-author of a book about Web 3.0, explained how fast and secure Proof-of-Stake systems are and what’s wrong with (de)centralized social networks. This is an adaptation of the original Russian-language article Vladimir wrote exclusively for ForkLog.

Tron vs. Steem(it)

To be precise, it’s Tron vs. Steem, but the conflict began with Steemit. Justin Sun bought a share in Steemit, which is a Steem-based Dapp, and then tried to move the entire Steem onto Tron blockchain. The community didn’t like it and Hive hard fork happened.

Here, both sides are responsible. The Steem community turned out to be united but lazy. They woke up from the thirty times higher staking values when it was too late. Sun wanted to apply his rules to others and even used some help from exchanges that appropriated users’ tokens to vote for desired validators.

This shows that Proof-of-Stake (PoS), as well as Delegated-Proof-of-Stake (DPoS) and Liquid-Proof-of-Stake (LPoS), do not solve the problem of a hostile seizure of power. In PoW, since 2018, the pool centralization is only apparent. Nominally, most pools are indeed in China, but the physical locations of nodes and mining communities are spread across many places, including Siberia, Chile, Venezuela, Canada, and the U.S. Mining leaders have also been changing: China, Russia, the U.S.

One of the potential solutions I’ve managed to find is Fair DPoS where voting for the delegates involves dividing the participant’s stake by the number of votes. If a participant with a stake of 100 tokens voted for delegates A and B, each will get 50. If they voted for three, each will get 33.33. This restricts large holders from putting preferred delegates on top and eliminates corruption.

All in all, there is a risk of losing everything because of the governance system even if it seems that the change of ownership doesn’t matter.

EOS: Project That Killed Itself

I like Bitshares and Graphene, but EOS has shown how you could (but shouldn’t) earn material capital while losing social capital.

The longest ICO in history was almost an endless token sale that worked by the greed formula: issuance, purchase, price uptrend, issuance, price downtrend, purchase, a new cycle. managed to collect over $4 billion before catching the eye of the SEC.

There are other downsides to EOS as well. In a sense, you can change smart contracts in EOC. This renders them not really trustworthy. There’s also no NFT standard, no convenient SDK for unit tests, limited free nodes, etc. The benefits touted during the ICO not only didn’t solve the problems of Ethereum but led to problems of their own.

Dash: Why PoW/PoS Compromise Doesn’t Help

I often hear about a compromise between PoW and PoS being a perfect solution. This is the approach taken by Dash, Zilliqa, Decred, and some other projects. In reality, this solution is far from perfect.

In Dash, 90% of the block reward gets split between miners and masternode operators. Masternods are needed for two operations: PrivateSend and InstantSend. PrivateSend operation allows setting the number of mixings for the desired level of anonymity and the second allows sort of instant transactions.

The biggest disappointment was the prohibitively expensive D3 miners that didn’t pay off. Delayed deliveries, the craze of late 2017, and the market crash played their role.

The architecture can look right, but there are always gaps for epic failures.

If Something Is Being Sold, There’s Profit To Be Made

Greta Thunberg became the Person of the Year 2019. She has drawn the world’s attention to the problems of global warming yet again, although the trend was already there. Masternode salespeople for various DPoS and LPoS systems exploit the situation claiming that mining means harm for the planet. They omit three points:

  • The heat from many mining farms is used for greenhouses, homes, malls, and the generation of new energy. The harmful effects of mining are often overstated.
  • The architecture of DPoS and LPoS systems doesn’t imply a lot of participants. In PoS systems a thousand is a lot. With scaling, considering the network effect and Metcalfe’s law, the hardware will evolve similarly to the rigs in traditional mining. There are things such as ping, network throughput, and other parameters, which can be used by software only to a certain extent.
  • There’s a reason why PoS has this many versions: DPoS, LPoS, PoS, POI, etc. There’s a difference in rights, abilities, and duties of different network participants. In the case of a hardware war, only the rich would win.

Setting aside the standard work outlined in the Bitcoin whitepaper, real-life computations require GPU capabilities. You also can’t store data on centralized servers or in Amazon’s cloud, but there are Proof-of-Spacetime and Proof-of-Replication used by projects like FileCoin, Storj, and Sia. In the end, we are getting back to PoW, albeit in a different form.

Ecology-based marketing messages aren’t the only tools of DPoS and LPoS promoters.

The ⅔ voting in Tendermint is quite effective until there are disagreements. It allows mining blocks but also to validate any value, work, or result. This allows for the required level of security but brings accessibility problems along with it.

It is possible that less than ⅔ of votes may be cast. This would mean downtime and wait. It’s great that the result is finalized after the approval, but Ethereum has uncle-blocks as an extra bonus for all miners.

In my opinion, the main problem is how the weight of the chosen node is calculated. In short, it’s the number of coins locked. The problem is that the richer ones win.

Another thing is that 1000 nodes aren’t really enough for the entire world. In Bitcoin, where nodes aren’t getting paid anything, there are about 10,000 of them. There are 7000 nodes in Ethereum. But a thousand? Currently, there are 442 banks in Russia, although there were 1311 of them 20 years ago. This is to serve 145 million people. There are 7.5 billion people on the planet and counting. A thousand doesn’t seem to be substantial enough. It does look like another level of manipulation, though.

Why Doing It Then?

The answer is speed: transactions per second.

There is a significant misconception here. Visa and Mastercard don’t have 20,000 or 50,000 transactions per second (Tps). The real numbers are between 3500 and 4000 Tps. Ripple’s XRP Ledger reaches 1500 Tps. Ziliqua, as well as PoW-based systems Tera and Kadena have good metrics.

On the other hand, we may need 100,000 or even 1 million Tps speeds very soon for IoT and decentralized social networks.

And here we approach the most fundamental problem, which is more social than technical. We trust banks, search engines, and social networks, and therefore pay them three times:

  1. First, you pay for taxes, fees, inflation, exchange differences and so forth. The government creates a regulatory framework for the benefit of corporations. Even the GDPR looks like an effort to protect citizens while being a means to make us into digital slaves. We are being ruled at our own expense.
  2. The rule “if you don’t buy anything, you are being bought” is perfect. Siri, Alexa, and Google Assistant eavesdrop on you and store your data via lots of JS-scripts on websites. Big Data is the oil of the digital age. We are every drop of it but it does not belong to us. You can and sometimes should sell your data but you should get profit from that.
  3. We pay directly by buying ad campaigns, posting classifieds, and subscribing to services.

Meanwhile, Facebook blocks cryptocurrency-themed ads just to create Libra later. That’s why I started learning DPoS and LPoS systems. They underpin lots of DSN prototypes. Still, it would be silly to claim they are bound for success. As shown by the ICO boom, developing a product is much more than a good team and a great idea.

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