DO you guys ever think that bitcoin will do proof of stake? Just wanted to get some peoples insights on this.
No, because PoS doesn't work as a decentralised consensus.
PoW has been shown, in bitcoin, to centralize, and we know the economic reason for that: "economies of scale".
The problems, as seen in bitcoin, with PoW, are the following:
- hugely wasteful if the market cap grows. The amount of wasted hardware and power is gigantic, and is an economic necessity in PoW schemes. I don't know how accurate it is, but it is said that bitcoin is using about the electricity of Denmark. That's crazy. Scale this up a factor of 100 (full adoption of PoW coins all over the world) and most of our power production on earth would simply serve to make a piece of data. Crazy.
- the industrial proportions that mining takes, splits the eco-system in an industry of block chain providers on one hand, and a set of customers (users wanting to do transactions) on the other side. As a coin owner, you are at the mercy of the miner industrial complex for them to make a block chain and put your transaction in
- obvious centralization, due to economies of scale. Bitcoin's consensus mechanism is entirely centralized on a few pools.
- cryptographically not very secure. Indeed, the cryptographic security resides solely in the need for an external attacker to do a *similar* amount of work than was needed to generate the security in the first place. This is unseen: good cryptography normally requires an attacker to spend *immensely more* work to break a cryptographic seal than was needed to make it. This is also why proof of work will end up needing the majority of electricity consumption on earth: to avoid that another majority can exist and overdo it. But at the same time, industries on such a scale are always under a central control, and cannot go "underground". You can calculate digital signatures in your basement, but if you need 60% of a country's energy for mining, that will obviously have governmental implications.
Every single PoS coin is a private club, with trusted owners, much like Visa the company is.
But that is what a crypto currency should be: entirely determined by its owners. It is very strange to have a crypto currency that is depending on an external industry, and of which the users are not making up the consensus. A PoW coin is very much exposed to an external attack, while a PoS coin is cryptographically secure against an external attack. It can of course suffer *internal* attacks.
However, we forget one thing if we discuss all these schemes of attack: that is: the market. It is assumed that "stake holders" are a priori motivated to keep the value of a coin more than external agents. It is true that this is more complicated if in the financial markets, you can short against the coin, but that's even more true for external attacks. If you have high stakes in a coin because you own it, it would be somewhat stupid to use that stake to destroy it in the market (any successful long range attack will of course entirely destroy it in the market).
When you invest in a PoS coin you are being tricked into thinking you're investing in the future, when actually you're investing something that can never work as designed.
That's just as well the case for a PoW coin. PoW doesn't work as designed. In bitcoin, it is now entirely centralized, it is hugely wasteful, and honestly, it could easily be attacked by a collusion of 5 or 6 mining pools. The day that the mining pool owners massively short bitcoin, they might be inclined to do some stupid things, simply to kill it. Maybe they even get some money from the Chinese government for doing so on top of their shorting.
There are no absolute and decentralized secure mechanisms of consensus building. This is even a theorem. But some do kind of work, because we are not in a totally decentralized world, there are market interests and all that. Bitcoin most probably would even continue to work correctly, even if mining were in the hands of 2 or 3 people (in fact, we're not very far from that case). Simply because they have stakes in it, it is their business. With proof of stake too. Because in the end, the "long range attack" would oblige all on-line nodes to accept reorganising the chain over a long line. Most simply won't. You can easily "lock in" the blocks of yesterday and decide not to accept a reorganisation that goes back to yesterday if you are online. Contrary to PoW, where the full non-mining nodes have nothing to say, with PoS, that is not the case, as all users are staking ("mining").
The PoS algorithm simply needs to take into account certain cases. And yes, it won't be entirely secure, as no consensus algorithm is entirely secure.
