Promoting ASIC Resistance in 2017 is like bragging to a car owner that your horse is faster than average – The case for the obsolescence of Proof of Work and why 2018 will be the year of Proof of Stake
Proof of work solves the Byzantine Generals problem, but it is expensive, inefficient, wasteful, and obsolete. Proof of Stake (PoS) v3 is an improvement for all of the problems listed below.
Centralization
Proof of Work (PoW) has always introduced points of centralization in the form of pools, electricity costs, and chip manufacturing. Pool centralization on PoW is so common it’s hardly reported on anymore. Vertcoin is above 51%, Zcoin is far above 51%, Zcash is above 51%, Dash has Antpool at 48%. This is from looking at only 6 altcoins, not cherrypicking, so I’m sure there’s a lot more out there with this problem. PoW relies on people voluntarily switching from large pools to avoid this risk, but clearly that does not work in practice. Even if you get below 51%, you’re still at risk of the two or three largest pools being able to work together for an attack. There’s more than enough money flying around to incentivize that type of action.
Electricity costs have centralized mining in places like China and Venezuela where it is significantly cheaper. ASIC chip manufacturing has been the most popular point on this topic with BitMain being the focus for the past year. The ASIC industry has centralized to only a few providers and in only a few countries. This gives these companies significant control over all coins dependent on these ASICs for security.
Now the ASIC Resistance fans are going to jump in here and say the chip part does not apply to them. GPU mining introduces a few unique issues itself. This article about why Sia chose to make ASICs for their coin elaborates on these concerns, but I’m going to focus on one here. ASICs are expensive and become obsolete quickly, but the are profitable if you are using them, so it is unlikely that there is much hashrate sitting idle. Conversely, GPUs are abundant and a very small amount are dedicated to mining. This means there is a massive amount of potential hashrate out there that could be used to attack a coin. We’ve already seen this done with CPU miners with botnets and now browser background mining. With the profitability of mining, the ease of operation (1 click miners anyone?), and the size of Mirai, Dridex, Reaper, and other botnets out there, you’ve got all the ingredients for a highly disruptive force.
Proof of Stake has none of these issues. It doesn’t rely on chips, electricity costs, or pools. If you look at most PoS coin distributions for an idea of the hashrate, the largest player is usually less than 10% of the supply. Buying 51% of the supply is massively more expensive than 51% of a PoW hashrate. Additionally, some PoS coins like PIVX have a masternode layer as part of their block validation which would require ownership of far more than 51% of the supply for a chance at attack.
Governance
Centralization is not only a 51% attack concern because many coins rely on mining hashrate for governance, which further stresses the importance of a high quality, decentralized security mechanism. If your proof mechanism has centralized in China, you’re not representing the interests of your users, you’re representing China’s interests. If your chain has been attack by a botnet, you’re highly inflenced by the owner of the botnet’s C2 server. Proof of Stake allows you to represent your users and scale influence according to investment. This is better, but still can lead to plutocracy, so take a look at Decred or PIVX for some excellent work on governance improvements.
Efficiency and Environmentally Friendliness
Proof of Stake is so low energy you can do it on a raspberry pi using a few watts. Proof of Work however is tremendously wasteful, requiring a massive amount of energy, hardware, and usually investment amount. Not only does this cut out many of the poorer people around the world, but an interesting story recently came out of Venezuela on this subject. Due to the economic turmoil and subsidized electricity, many people have turned to mining crypto to make some money. However, the oppressive government doesn’t like the loss of financial control or waste of electricity, so they track down high electricity usage and jail crypto miners. If they were staking a PoS coin and using network privacy tools, their risk would be basically eliminated.
“Rich get richer” fallacy
There is a belief floating around that staking is a rich get richer ponzi scheme type system. This is not true in most PoS coins since coinage from PoSv1 was ditched.
The main difference in mining/staking payout is who gets it. ASIC POW gives it to people who own mining or ASIC factories. Non-ASIC coins are giving it to the people with the technical knowledge and hardware to run mining rigs. Even 1 click miners are still giving it to people with the most optimized hardware. Proof of stake is simply giving it to the people holding the coin and supporting the network. It's a far more decentralized distribution. At a certain point POW is like broken window economics
Most POS3.0 coins give proportional rewards, they don't give a preference for the ultra rich like FUD implies. When you consider that value is in relation to the coin supply, 8% ROI is just the same for 10 coins as 10,000,000 coins. Along the same lines a coin could just double everyone's holdings tomorrow and wealth distribution as a percentage would not change. Inflation
The small nugget of truth in this type of issue is that a holder of over 51% of the coins is difficult or impossible to usurp, but this type of attack is prohibitively expensive on any somewhat mature coin. It is magnitudes more expensive than buying more hashrate to attack a PoW coin and is not a repeatable attack because you would destroy the value of your own holdings and affect yourself more than the people you’re attacking. With a PoW hashrate attack however, you haven’t lost much of anything and can easily move on to attack the next coin or mine for profit.
Economics
Finally, I’ve seen several people support PoW because it creates work and provides jobs. However, creating unneeded work just to employ someone is known in economics as the Broken Window Fallacy.
The efficiency of PoS also removes the need to collect fees for miners. They can instead only be collected purely based on spam control and these savings are passed on to the users. Conversely, PoW fees are already getting prohibitively expensive and as the reward drops miners will move to other, more profitable coins because fees will not sustain as much hashpower. This will open up the coin to hashrate attacks.
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