Bitcoin energy myth, and the flaws of Proof of Stake

The myth Bitcoin uses too much energy

People often complain about Bitcoin’s energy use, and throw around useless metrics like cost per transaction. This metric is useless because Bitcoin uses almost all of it’s energy during the mining and minting process, and hardly any at all for day to day transactions. Also:

  • The energy spent is per block, which can have a varying number of transactions. More transactions does not mean more energy
  • The economic density of a Bitcoin transaction is always increasing(Batching, Segwit, Lightning, etc). As bitcoin becomes more of a settlement network, each unit of energy is securing exponentially more and more economic value.
  • ASIC’s are actually extremely efficient at converting electricity to heat. +99% efficient. This heat can be recycled.
  • Almost all mining is being done with renewable energy right now. Most principally unused hydroelectric in china that would simply go to waste without those ASIC farms capturing the energy
  • When comparing the energy used in mining to traditional fiat you must analyze all the energy consumed in regulation, auditing, accounting, building infrastructure, security, ect to fairly compare the two

The whole point of Proof of Work is to tie the security of the network to something tangible and expensive, so it cannot be attacked without a huge sunk cost. It’s a feature, not a bug. This energy cost is not wasteful, it is necessary for the security of the chain.

If you need a tank, you can’t complain about it’s weight. Its weight is one of the reasons for its robustness in the first place (or at least it’s an implication of its armor).

The Bitcoin ledger can only be immutable if and only if it is costly to produce. The fact that Proof of Work (PoW) is “costly” is a feature, not a bug. Until very recently, securing something meant building a thick physical wall around whatever is deemed valuable. The new world of cryptocurrency is unintuitive and weird — there are no physical walls to protect our money, no doors to access our vaults.

And most the crucial point; that PoW is the only known mechanism to ensure neutrality and objectivity, from which we get immutability, censorship resistance, permission-less open blockchain… Something that is overlooked by many, but is foundational criteria to be considered a cryptocurrency.

Proof of Stake

PoS adds governance and subjectivity again, which turns it in to a community fiat system (just a bad one, given that 1 vote is given per coin rather than per person as in most democratic governance systems).

Mining in PoW is external, but stakers in PoS are inside the ledger. In other words, full nodes cannot get rid of stakers in PoS systems, even if they split. This means PoS is not censorship resistant as censors cannot be evicted. Sleeping with the enemy is not fine.

There is really no such thing as “staking” in PoS, it’s just a group of trusted rich participants controlling the system. Miners are, in fact, real stakers because they do sink capital in equipment, data centers, and electricity, and can only recover their investments after mining for months if not years.

Proof of Stake is not new or very interesting, and exists as a form with fiat currency already. Proof of stake has many more attack vectors(nothing at stake attacks, long range attacks, short range attacks , stake grinding attacks) than proof of work and ultimately is either less efficient or less secure.

With PoW (proof of work) you would need to be a tremendous amount of effort in order to censor 1-2 blocks with building many asic mining farms, and than burning the electricity continuously in order to attack bitcoin.

With Proof of stake all I need to do is be an early adopter(s) , hack/kidnap an early adopter(s) , or convince many users to join a interest bearing bank account by staking their coins with my company(done many times before) to attack the network. Since Proof of work involves outside resources one can always objectively see and measure the hashrate and sources in realtime and one can cutoff such an attack because it involves outside resources.

There are many different variations of proof of stake but the simplest way to understand this is by looking at those blockchain’s as a democratic consensus mechanism where everyone’s vote is weighted based upon how many coins or stake they control. Their staked coins than have an opportunity to create a block without proof of work and a dev controlling 51% of the coins gets to virtually mint ~51% on average of all the blocks . This presents another concern as the coins typically need to be in “hot wallets” to do so instead of cold storage leading to a more insecure environment.

Since most PoS coins have massive premines where only a small number of devs control most of the coins this also presents another concern as those devs can be targeted by states , hackers, or attackers or as we often see with altcoin devs they pump and dump a project and than move onto a competing project to repeat this cycle over and over again thus have an incentive to attack their old project.

With Proof of work, seizing the coins or stake of any individual or group of people doesn’t effect the process of mining or securing the network directly at all . They can only try and spook the market by dumping coins at a discount while individuals like myself will happily buy up all the discounted coins.

Fiat currency and PoS coins cost at least the same amount of resources to create, regulate, and secure as Bitcoin. PoS is being sought because it is a clever marketing ploy to attract environmentalists who are concerned about the electricity used in PoW mining.

Further Reading:

https://www.truthcoin.info/blog/pos-still-pointless/

https://www.danheld.com/blog/2019/1/5/pow-is-efficent

View at Medium.com

Why Proof of Stake Is Less Secure Than Proof of Work

Click to access ARKInvest_031220_Whitepaper_BitcoinMining.pdf

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