Bitcoin Forum

Tried to post this on r/CryptoCurrency but apparently you need 500 karma and I only have a couple of hundred. Then I tried r/Bitcoin and it just deleted my post without giving me any reason. Hopefully it doesn't disappear into the ether this time. I felt compelled to write this after I read some recent news articles like the one from CoinDesk titled "Bitcoin's Price May Crash After Ethereum's 'Merge,' Researcher Says".

Let me begin by saying I own roughly an equal amount of Bitcoin and Ethereum, I'm not biased towards either one. I have a lot of respect for people like Vitalik who have helped advance cryptocurrency technology. However I can't totally agree with the way Vitalik and some others are portraying PoW and PoS as if they are two opposing solutions and that PoS is clearly the better solution because it's much more energy efficient.

First of all, without any sort of PoW mechanism, a new cryptocurrency must be sold off to buyers in an initial public offering (IPO). I don't think IPO's are a very good way to distribute the initial coins, because it results in a small number of early adopters owning a large fraction of the coins, and it just doesn't feel like it's in line with a decentralized philosophy of money. PoW allows coins to be distributed in a more slow and fair manner.

Once the PoW system starts to reach the end of its viable life-cycle (when block rewards become too small to be economically sustainable) then the consensus system can be switched over to PoS. Multiple coins have done this in the past, and there's no good reason that Bitcoin couldn't do the same thing many decades from now. In fact I'm pretty sure that's what will eventually happen, but not until PoW has done its job distributing coins to miners.

In the case of Bitcoin, it can't be the type of change which could result in a hard-fork, it must require a vast majority. Any big changes should be implemented long before they are planned to go into effect so that people have plenty of time to update their client. The change will automatically go into effect if enough people have updated to the new protocol. I believe this is usually done in the code by checking protocol version numbers in blocks.

Bitcoin has always followed that philosophy and I believe it's the best philosophy for Bitcoin, although I understand other coins like Ethereum have a more rapid development approach and so they have a different philosophy about changing the fundamental consensus mechanisms. Bitcoin is the original coin and it was supposed to be resistant to any type of centralized oversight or manipulation, even from Satoshi himself, and I think it's an important principle.

We should be able to rely on the rigid nature of blockchains to resist change from centralized forces, we need to know the consensus system is reliable and robust, otherwise what is the point of cryptocurrency? Ethereum sort of challenges this notion, and for the most part it has worked, but I think this is mainly because it has some very smart people working on it and those people seem to be generally trustworthy and have the right motives.

Also, less people would use Ethereum and less people would update their client if they felt it was headed in a bad direction, so it's not like Ethereum developers can do anything they want. The risk of a hard-fork is greatly increased when people disagree on a particular change, and it seems the upcoming change from PoW to PoS will probably cause Ethereum to hard-fork. That could also cause NFT's to be duplicated on each version of the chain.

NFT's are supposed to represent unique items, usually art, so a hard-fork does present a slight problem, although I expect the PoW NFT's will quickly lose most of their value once the PoS chain becomes the "official" Ethereum. Vitalik did point out that people can still mine Ethereum classic using PoW if they really want to, instead of creating a new fork of Ethereum. But I'm not sure that will be enough, we'll probably end up with 3 Ethereums.

Classic Ethereum, Ethereum PoS, and Ethereum PoW. This also highlights another issue related to rapid development and constant hard-forks, how many times can we do it before we have too many Ethereums? Another crucial reason Bitcoin should stick to PoW for as long as possible is because there might very well be some security hole in PoS we haven't fully realized yet, I feel PoW is less experimental and has more obvious security guarantees.

PoS rewards the richest people the most just for holding coins without doing any work, my gut tells me it could have unforeseen weaknesses. PoW requires energy, but that's precisely what makes it so secure, and also what separates Bitcoin from a currency which is easy to create out of thin air using little effort. A PoS coin requires an IPO to distribute coins but the initial price of the coin can be decided by the people who created the coin and premined it.

Whereas a PoW coin has its initial price set by the market (e.g. a miner tries to sell coins for more than the cost of energy used to mine the coins). Obviously speculators play a large role in the process, but it's not like the price of Bitcoin is "whatever we agree it is" as we often hear. It seems to me money should be hard to create and the fact bitcoins require energy to create them gives them some underlying value which isn't based purely on speculation.

Vitalik is correct to say the weakness of PoW is at the end of its life-cycle when the block rewards dry up. The weakness of PoS is at the beginning of its life-cycle because you need a fair distribution to decide which stakeholders to reward. This is why PoW and PoS complement each other, PoW can be used to distribute the coins in a fair and market-driven way over a long period (at least several years) then it can shift to PoS when block rewards dry up.

Obviously you could just have unlimited block rewards in a PoW system, but I'm not going to ignore the clear environmental advantages of PoS. There are many other productive things we could be using our energy for, so if we don't really need to burn energy in order to validate and secure the blockchain, then we should try to avoid it. However I believe PoW still plays an important role and we shouldn't throw it aside or buy into this PoW vs PoS narrative.

Maybe this is a silly question, but why couldn't a token be both at the same time?

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