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The Security Budget Flaw That Proof-Of-Stake Introduces

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Bitcoin’s proof-of-work mechanism provides the security that Ethereum has sacrificed for short-term narrative benefits.

This is an opinion piece by Mickey Koss, a West Point economics graduate. He spent four years in the infantry before transferring to the Finance Corps.

Ethereum founder Vitalik Buterin recently expressed concern about the long-term security of Bitcoins, citing relative security budgets based on online payment structures.

These concerns are unfounded and based on an incorrect comparison between the two systems. Here’s the reason:

First, Ethereum’s proof-of-stake hardware and monetary requirements encourage the concentration of stakes in service providers such as large exchanges. There are numerous risks associated with outsourcing, including the possibility that the government of the jurisdiction in which those entities exist will deploy the network with the stroke of a pen.

Furthermore, in a world of limitless fiat currencies, central banks and governments could also quietly hoard ethereum and slowly work their way into full and legal control of the network. Security budgets consisting only of monetary constraints are meaningless in a world without physical scarcity.

Bitcoin is fundamentally different. Mining requires inputs of hardware and energy, both of which are inherently scarce. The combination of scarce technology and a network of energy inputs makes the task infinitely more difficult to accomplish, especially in hiding.

On top of that, proponents of this particular line of FUD completely ignore the positive externalities that energy demand or bitcoin mining provide. I have already written about this extensively in previous articles such as “Who Says Bitcoin Mining Must Be Profitable”. TLDR: Bitcoin mining doesn’t have to be profitable in the traditional sense due to incentives created by different use cases; sometimes anything is better than nothing, especially if your energy is wasted.

Overall, these concerns indicate to me a lack of creativity and foresight that suggests status quo or fiat thinking. Proof-of-work is innovation; Energy consumption is not only a feature, but also an incentive, not a fault of the system. The integration of proof technology and the energy industry is a natural fit and will only increase adoption and increase abundance for a better future for humanity.

The widely advertised 99% reduction in energy consumption that ETH is experiencing will ultimately lead to its destruction in my opinion. Proof of work maintains ties to the real world, where incentives are stronger than compulsion. Proof of stake decides to break those bonds and only encourages HODLing.

Energy innovations and integration displace and negate the risk-free return of counterparties in the long term. The need for innovation in the energy sector is becoming clearer every day. Bitcoin and proof-of-work are bound to shine in the coming years, helping to bring cheap and abundant energy to the masses. Gradually, then suddenly; low time is all that is required.

This is a guest post by Mickey Koss. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.

Source: Bitcoin Magazine



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