My beef with Proof-of-stake

[hazenyc]

My whole problem with proof-of-stake is that it's supposed to be analogous to putting money in say a 3- or 6-month CD where it sits tied up and earns interest.
The reason a CD earns interest is that while it sits tied up, the bank issues loans and extends credit to businesses (very few 3- or 6- month personal loans). These businesses take the loans in order to continue day to day operations and repay it with a portion of future sales proceeds. The reason the businesses need the loans is that it's cheaper for them to borrow than to sit on excess cash that could put to work doing productive things.
Meanwhile, the bank promises you x% on your CD while it charges x + y% to the business, and makes the incremental profit of y%.

With a POS wallet, where does the interest come from? If it's just coming from the POS hashing creating a flow of coins by generating new money supply, well this is doomed to fail. Imagine if instead of the mechanics of the CD above, you put the money into the CD and get promised x%, and instead of loaning that money out to earn a spread on the interest received they ask the Fed to print x% more dollars for you. Nothing has changed. There has been no value added. The result is just more money, which will ultimately reduce the *real* value of that money in terms of buying power:

Say $100 buys all the groceries you need for the month.
You put $100 in a 3-month CD that pays a 3-month rate of 2%. And assume the second scenario where money is just created for you and not put to work. You receive $102 back after 3 months, but now it costs you $102 to buy all the same groceries for the month that used to cost $100.

[xmasdobo]

The money from POS afaik comes from basically being what would be a miner in a situation where all coins are mined in a PoW coin, you are processing transactions. Im not that versed in economics to really argument how this is or isnt better than POW or other methods.

[exoton]

The additional money that people receive when they stake a PoS coin is almost always from transaction fees, although sometimes it can be from outright inflation. When it is the former the overall money supply will remain constant and people will have an incentive to hoard their coin, however when it is the later there is zero advantage to holding the coin as the total value of your holdings will remain constant at best while you simply have a larger number of coins in your possession

[pawel7777]

@hazenyc - your point is valid.

You don't get any richer by just holding PoS coins, you just maintain the same portion of your holding (same % of total market cap).
Basically stacking up coins gives you protection from inflation and nothing more, that's still "better" than PoW (but there are other factors that give PoW the advantage).

[Alix Istek]

Imagine a world with a currency that came in various bond forms, which we can divide into 3 rough categories:
* base currency which slowly loses X% of its relative value per year - where X is 3% or something
* mid-term bonds which stay perfectly stable in relative value
* long-term bonds which gain in relative value at X% per year

Normally this system would be inflationary, but that's kindof arbitrary - one can easily imagine just converting the currency into relative units.

Holding base currency gives you the most liquidity and is the best option if you may need to make big purchases in the near future - but you slowly lose wealth to 'inflation'.  Holding long term bonds gives you a return (negative 'inflation' that is the counterpart to the currency value loss), but you have to plan expenses carefully. Most people would hold some mix that suites their needs.

Now this system may seem 'strange' but it actually has some interesting pareto optimality going on - everybody is generally better off.  Inflation isn't a problem because the people holding lots of base currency don't expect to hold it for long anyway - and more importantly - the interest drives demand for bonds which removes liquid money supply which generally lowers prices.

So the currency holders are better off because they get lower prices compared to a system without bonds, and the long term bond holders are better off because they get interest.  Everyone wins.

Actually - and here's the secret - our current system is already kind of like this (but with a bunch of added extra complexity).  We just don't renormalize the money base, and moreover - the bond gain doesnt actually match the monetary inflation, so the current system 'leaks'.

[bitcon]

\

Say $100 buys all the groceries you need for the month.
You put $100 in a 3-month CD that pays a 3-month rate of 2%. And assume the second scenario where money is just created for you and not put to work. You receive $102 back after 3 months, but now it costs you $102 to buy all the same groceries for the month that used to cost $100.

but with pos, if the value of the coin goes up 3x and you still have the same amount of coins, then you can buy $300 worth of groceries (or still the $100 worth and have $200 leftover).  PLUS the 1% interest you have earned has also increased 3x.  compound interest. With pos you are rewarded for holding onto your coins. (attempts to dissuade stakeholders from dumping them onto an exchange). your crypto works for you.   i like crypto working for me rather than working for my crypto.

[Agestorzrxx]

With a POS wallet, where does the interest come from? If it's just coming from the POS hashing creating a flow of coins by generating new money supply, well this is doomed to fail.

where does the interest come from?
It's the key question.
The POS coin as PPC and BC can't answer such questions.
Such coins just as perpetual motion, they don't need any imput, but with continuous output.
No one pay the interest.
Yes such coins will definitely  is doomed to fail.
But there are another type of POS coins, such as NXT and qora. There is no interest in such coins.

[ndnh]

My whole problem with proof-of-stake is that it's supposed to be analogous to putting money in say a 3- or 6-month CD where it sits tied up and earns interest.
The reason a CD earns interest is that while it sits tied up, the bank issues loans and extends credit to businesses (very few 3- or 6- month personal loans). These businesses take the loans in order to continue day to day operations and repay it with a portion of future sales proceeds. The reason the businesses need the loans is that it's cheaper for them to borrow than to sit on excess cash that could put to work doing productive things.
Meanwhile, the bank promises you x% on your CD while it charges x + y% to the business, and makes the incremental profit of y%.

With a POS wallet, where does the interest come from? If it's just coming from the POS hashing creating a flow of coins by generating new money supply, well this is doomed to fail. Imagine if instead of the mechanics of the CD above, you put the money into the CD and get promised x%, and instead of loaning that money out to earn a spread on the interest received they ask the Fed to print x% more dollars for you. Nothing has changed. There has been no value added. The result is just more money, which will ultimately reduce the *real* value of that money in terms of buying power:

Say $100 buys all the groceries you need for the month.
You put $100 in a 3-month CD that pays a 3-month rate of 2%. And assume the second scenario where money is just created for you and not put to work. You receive $102 back after 3 months, but now it costs you $102 to buy all the same groceries for the month that used to cost $100.

Yeah, this is exactly one of the reason why I like PoW more than PoS.
Paying interest like that is like not paying anything at all. In face it is worse. It will just create the impression that you get something, while actually you don't.

Yes, I know pow is not that energy efficient or anything, but it is more likely to succeed. It is (one of the 1 million reasons ) why I am bullish on Bitcoin.

[ed_teech]

Mining is more fun. Staking is not fun.

[bitcon]

With a POS wallet, where does the interest come from? If it's just coming from the POS hashing creating a flow of coins by generating new money supply, well this is doomed to fail.

where does the interest come from?
It's the key question.
The POS coin as PPC and BC can't answer such questions.
Such coins just as perpetual motion, they don't need any imput, but with continuous output.
No one pay the interest.
Yes such coins will definitely  is doomed to fail.
But there are another type of POS coins, such as NXT and qora. There is no interest in such coins.

in PPC the interest you get comes from "minting" of coins.  its the same as mining coins, but the more coins you keep in your wallet, the more coins you "mint" every month.  i believe ppc is a hybrid pow and pos coin.

[Alix Istek]

My whole problem with proof-of-stake is  . ..

I somewhat misunderstood you earlier.  As you say, a pure simple PoS that inflates in the way you describe is in fact pointless, as it doesn't really perform any redistribution.  The bond example I gave earlier is a form of redistribution from short-term holders to long-term holders.  Its probably a good mechanism to have, but its not sufficient by itself as a redistribution strategy.  You actually want the new coins to go to those who work for them in some fashion.  PoW does that - albeit the work is pointless busywork.

Of course it would be better if the work done in exchange for new coins actually increased the long-term value of the coins: an idea I argue for at length elsewhere.

[RJX]

I like the possibilty of staking since it gets you coins over times when miniminers like myself can't participate effectively in mining anymore.

I don't know where it comes from actually but since they're added to the supply I'd say it puts extra pressure on the price, which is not good.

[Q7]

The problem i see with pos is that it discourages spending. If you notice most of the pos coin holders, they don't go about giving away tips. Same goes when it comes to spending. We need the coin to turn around which indirectly helps adoption rate. The idea will probably work for coins which has established itself with large userbase but definitely not for new coins.

[achimsmile]

The problem i see with pos is that it discourages spending. If you notice most of the pos coin holders, they don't go about giving away tips. Same goes when it comes to spending. We need the coin to turn around which indirectly helps adoption rate. The idea will probably work for coins which has established itself with large userbase but definitely not for new coins.

Isn't that why it encourages spending? If I am a PoS stakeholder, I don't want "my" coin (= investment) to fail. That's why I give away some as a bounty or donation for dev/media/publicity work.

I observe that effect in the PoS community that I'm part of, almost everything is done because there is a bounty for it, put up by some large stakeholders, or crowdfunded.

@ OP: There are two different types of PoS sytems here:
The ones where the supply is fixed. If you stake them, you get transaction fees paid by other users, but the supply remains constant (or decreases if coins are burned).
Then there are the ones where you "mint" coins. Newly minted coins are created "out of thin air", just like newly mined bitcoins.

[scarsbergholden]

The problem i see with pos is that it discourages spending. If you notice most of the pos coin holders, they don't go about giving away tips. Same goes when it comes to spending. We need the coin to turn around which indirectly helps adoption rate. The idea will probably work for coins which has established itself with large userbase but definitely not for new coins.

Isn't that why it encourages spending? If I am a PoS stakeholder, I don't want "my" coin (= investment) to fail. That's why I give away some as a bounty or donation for dev/media/publicity work.

I observe that effect in the PoS community that I'm part of, almost everything is done because there is a bounty for it, put up by some large stakeholders, or crowdfunded.

@ OP: There are two different types of PoS sytems here:
The ones where the supply is fixed. If you stake them, you get transaction fees paid by other users, but the supply remains constant (or decreases if coins are burned).
Then there are the ones where you "mint" coins. Newly minted coins are created "out of thin air", just like newly mined bitcoins.

Most PoS coins will not stake unless the coins have not moved your coins in 'x' amount of time so if you spend them then you are going to be penalized.

[pawel7777]

Isn't that why it encourages spending? If I am a PoS stakeholder, I don't want "my" coin (= investment) to fail. That's why I give away some as a bounty or donation for dev/media/publicity work.

No. It discourages spending by design.

You're basically asking people to sacrifice some % of their holding (+ future earnings they could get by staking that amount) for the 'greater good'.

Proper economic model shouldn't require altruistic actions from coin holders. You can pull it off with a new coin (to promote it etc), but it will never work long-term on a large scale.

I observe that effect in the PoS community that I'm part of, almost everything is done because there is a bounty for it, put up by some large stakeholders, or crowdfunded.

Which community is that?

[username18333]

Writcoin™ creates a heterarchical monetary authority by permitting its end users to “spend” money into existence—approximating anarchist communism.

[ObscureBean]

My whole problem with proof-of-stake is that it's supposed to be analogous to putting money in say a 3- or 6-month CD where it sits tied up and earns interest.
The reason a CD earns interest is that while it sits tied up, the bank issues loans and extends credit to businesses (very few 3- or 6- month personal loans). These businesses take the loans in order to continue day to day operations and repay it with a portion of future sales proceeds. The reason the businesses need the loans is that it's cheaper for them to borrow than to sit on excess cash that could put to work doing productive things.
Meanwhile, the bank promises you x% on your CD while it charges x + y% to the business, and makes the incremental profit of y%.

With a POS wallet, where does the interest come from? If it's just coming from the POS hashing creating a flow of coins by generating new money supply, well this is doomed to fail. Imagine if instead of the mechanics of the CD above, you put the money into the CD and get promised x%, and instead of loaning that money out to earn a spread on the interest received they ask the Fed to print x% more dollars for you. Nothing has changed. There has been no value added. The result is just more money, which will ultimately reduce the *real* value of that money in terms of buying power:

Say $100 buys all the groceries you need for the month.
You put $100 in a 3-month CD that pays a 3-month rate of 2%. And assume the second scenario where money is just created for you and not put to work. You receive $102 back after 3 months, but now it costs you $102 to buy all the same groceries for the month that used to cost $100.

Yeah, this is exactly one of the reason why I like PoW more than PoS.
Paying interest like that is like not paying anything at all. In face it is worse. It will just create the impression that you get something, while actually you don't.

Yes, I know pow is not that energy efficient or anything, but it is more likely to succeed. It is (one of the 1 million reasons ) why I am bullish on Bitcoin.

Yes but the threat of 51% attack on the Bitcoin network (PoW networks) is very real and I believe is one of the main reasons why big companies have not gone 'all in' with BTC.
PoS while not perfect adds another layer of protection against such attacks. An attacker would need to own a considerable amount of coins and the attack would definitely damage the value of the coin, so it's against their interests. 

[username18333]

My whole problem with proof-of-stake is that it's supposed to be analogous to putting money in say a 3- or 6-month CD where it sits tied up and earns interest.
The reason a CD earns interest is that while it sits tied up, the bank issues loans and extends credit to businesses (very few 3- or 6- month personal loans). These businesses take the loans in order to continue day to day operations and repay it with a portion of future sales proceeds. The reason the businesses need the loans is that it's cheaper for them to borrow than to sit on excess cash that could put to work doing productive things.
Meanwhile, the bank promises you x% on your CD while it charges x + y% to the business, and makes the incremental profit of y%.

With a POS wallet, where does the interest come from? If it's just coming from the POS hashing creating a flow of coins by generating new money supply, well this is doomed to fail. Imagine if instead of the mechanics of the CD above, you put the money into the CD and get promised x%, and instead of loaning that money out to earn a spread on the interest received they ask the Fed to print x% more dollars for you. Nothing has changed. There has been no value added. The result is just more money, which will ultimately reduce the *real* value of that money in terms of buying power:

Say $100 buys all the groceries you need for the month.
You put $100 in a 3-month CD that pays a 3-month rate of 2%. And assume the second scenario where money is just created for you and not put to work. You receive $102 back after 3 months, but now it costs you $102 to buy all the same groceries for the month that used to cost $100.

Yeah, this is exactly one of the reason why I like PoW more than PoS.
Paying interest like that is like not paying anything at all. In face it is worse. It will just create the impression that you get something, while actually you don't.

Yes, I know pow is not that energy efficient or anything, but it is more likely to succeed. It is (one of the 1 million reasons ) why I am bullish on Bitcoin.

Yes but the threat of 51% attack on the Bitcoin network (PoW networks) is very real and I believe is one of the main reasons why big companies have not gone 'all in' with BTC.
PoS while not perfect adds another layer of protection against such attacks. An attacker would need to own a considerable amount of coins and the attack would definitely damage the value of the coin, so it's against their interests.

“[Large] companies have not gone ‘all in’ with [Bitcoin]” because they were not sufficiently incentivized (i.e., positively motivated) to do so.

[ObscureBean]

My whole problem with proof-of-stake is that it's supposed to be analogous to putting money in say a 3- or 6-month CD where it sits tied up and earns interest.
The reason a CD earns interest is that while it sits tied up, the bank issues loans and extends credit to businesses (very few 3- or 6- month personal loans). These businesses take the loans in order to continue day to day operations and repay it with a portion of future sales proceeds. The reason the businesses need the loans is that it's cheaper for them to borrow than to sit on excess cash that could put to work doing productive things.
Meanwhile, the bank promises you x% on your CD while it charges x + y% to the business, and makes the incremental profit of y%.

With a POS wallet, where does the interest come from? If it's just coming from the POS hashing creating a flow of coins by generating new money supply, well this is doomed to fail. Imagine if instead of the mechanics of the CD above, you put the money into the CD and get promised x%, and instead of loaning that money out to earn a spread on the interest received they ask the Fed to print x% more dollars for you. Nothing has changed. There has been no value added. The result is just more money, which will ultimately reduce the *real* value of that money in terms of buying power:

Say $100 buys all the groceries you need for the month.
You put $100 in a 3-month CD that pays a 3-month rate of 2%. And assume the second scenario where money is just created for you and not put to work. You receive $102 back after 3 months, but now it costs you $102 to buy all the same groceries for the month that used to cost $100.

Yeah, this is exactly one of the reason why I like PoW more than PoS.
Paying interest like that is like not paying anything at all. In face it is worse. It will just create the impression that you get something, while actually you don't.

Yes, I know pow is not that energy efficient or anything, but it is more likely to succeed. It is (one of the 1 million reasons ) why I am bullish on Bitcoin.

Yes but the threat of 51% attack on the Bitcoin network (PoW networks) is very real and I believe is one of the main reasons why big companies have not gone 'all in' with BTC.
PoS while not perfect adds another layer of protection against such attacks. An attacker would need to own a considerable amount of coins and the attack would definitely damage the value of the coin, so it's against their interests.

“[Large] companies have not gone ‘all in’ with [Bitcoin]” because they were not sufficiently incentivized (i.e., positively motivated) to do so.

Well it's kinda hard to be positively motivated to invest millions into Bitcoin when all that's protecting your investment is your trust that everyone else will be playing fair. There are no laws to prevent someone from acquiring 51% of the network's hashrate allowing them to double spend and gain control over which transactions they wanna ignore. Do you think any incentive could motivate a company like Microsoft to pump millions into Bitcoin without any guarantee of security?