Proof-of-Stake is Useless. Here’s why…

Proof of Stake: The Free Lunch

Premise

Many will say that the value you add to the network by staking (for which you are paid in staking rewards) is a product of your participation in the consensus protocol by running near-costless validation scripts. If this were true, the network would ask for as many validators as possible since security would be a product of validators; more validators = more security. However, validator status is a $52,037 walled garden at the time of writing. As such, any value you produce by staking is not a result of running validation scripts; it’s the result of “putting your money where your mouth is” to increase the confidence that other nodes have in your intent to run the validation scripts properly. This is not inherently a bad thing, just something to note since it highlights the fundamental difference between PoW and PoS: PoW is pay-as-you-vote, PoS is pause-liquidity-as-you-vote (since you’re not actually parting with ETH, just temporarily pausing your ability to use it). It also highlights the dependent relationship between staked ETH and security: the staked ETH is the security.

Problem

Can value be added to Ethereum at all?

Exposing security to price & volatility.

So, where do the staking rewards come from?

Governments

People criticise bitcoin by saying it can be stopped by governments. With proof of stake, if governments want to take over Ethereum, they can simply do so by trading something with a near-zero marginal cost of production (fiat currency) to purchase a majority share of Ethereum’s stake. From this point onwards, they will have ultimate control over the state of the chain and direction of the project with negligible maintenance cost. They could simply sabotage it if they wanted, or worse. So long as they don’t sell their ETH to the rest of the network, they can do little to nothing to stop them since security is derived from ‘stake’ and the government already has it all. They don’t own it for profit, so they’re not selling it back to honest validators, no matter how high they bid.

Conclusion

There’s a lot wrong with Proof-of-Stake, but to sum it up, it’s a tautological catastrophe that uses circular logic to present a facade of “value for nothing” by over-simplifying the multi-dimensional problem of decentralised consensus that Bitcoin and its Proof-of-Work-based consensus mechanism solved. There ain’t no such thing as a free lunch, and decentralised consensus is one hell of a lunch, so we won’t get it for free.

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