The Unclear Impact

crypto, Proof of work VS proof of stake
All "proof of work" crypto are an ecological disaster, and such should be legally outphased as soon as possible.

But any thoughts on "proof of stake" cryptocurrencies (and PoS blockchains more in general)? If we remove the *ecological disaster* aspect, then we can value the thing on its own merit. At the present stage, I struggle to see the benefit beyond marginal cases that don't deserve the ongoing hype, but welcome thoughts.

re: crypto, Proof of work VS proof of stake

@g Disclaimer: I have stake in Algorand so I am biased.

I feel Algorand is the only chain that has really done PoS right.

Ethereum is not decentralized with the new PoS system they are migrating to, since not many people have enough cash lying around to be able to risk 32 ETH. And unfortunately it is a risk, due to their slashing mechanic. Underperforming nodes risk having their ETH revoked. This will encourage DDoS attacks on nodes, since there is a huge potential for monitary loss if you are able to knock their node offline.

Algorand is simple, fast (1 block every 4.5 seconds with instant finality), requires little hardware to run, and has no slashing mechanism that will take your money if your node goes down for a bit.

Most people who use Bitcoin cannot mine, most people who use Ethereum cannot stake. Most people who use Algorand can stake, and participate in block creation and voting.

re: crypto, Proof of work VS proof of stake
@robby Thanks for the details on Algorand. I had read the Ethereum docs, and indeed the 32 unit for staking seemed exclusionary, even if I'm not sure that creates real risk. We'll see.

I happen to know someone from the team who started anoter PoS crypto, Elrond, which apparently took some elements of Algorand, but increased efficiency via sharding.

In both cases, unlike proof of work crypto, I don't dismiss them as something that there's no way to get technically right at scale and should be outlawed on energy efficiency considerations.

I do feel it is possible to get PoS right at scale, and we'll probably get there.

But my question is more fundamental: if we get this right, and there's a few PoS cryptocurrencies that do that... I still struggle to see the benefits, beyond those who make money in trading them. Stability in exchange rates does not seem to be even on the horizon.

re: crypto, Proof of work VS proof of stake
@robby Like, I see some real world use cases for PoS blockchains if they're efficient enough. But the cryptocurrency part, to be of any use outside trading, would need to have a degree of stability... I don't see that coming.

re: crypto, Proof of work VS proof of stake

@g Right now PoS tokens have 3 uses: trading, control over the network, and transaction fees for other tokens ontop of the blockchain.

It’s easy to see why tokens like stable coins are desirable: they let us transact fiat without needing to deal with a middleman like visa or paypal. The PoS token is valuable when transacting with a stable coin because it allows you to pay the transaction fee. To a merchant, staking the native token is desirable because it allows you to participate in strengthening the network and protecting the integrity of your transactions.

In the future, it might be normal to only store a small amount of money as the native token in order to pay transaction fees, and store the rest as a stable coin.

re: crypto, Proof of work VS proof of stake
@robby @g I'm probably off base here, but wouldn't relying on a stable token effectively amount to losing the benefits of decentralization (why using a blockchain would be interesting in the first place)? Or is there a way to have a stable token without an authority behind it that holds fiat backing the price of the token?
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re: crypto, Proof of work VS proof of stake

@kristof @g stable tokens are usually managed by a central authority like you say. In this case the benefits still include the ability to use decentralized smart contracts, meaning high availability for your application.

Stable coins can also be pegged to a value like the dollar in a decentralized way. DAI is one such coin, which has been able to hold a stable dollar value, without a central authority holding 1 dollar for each token.

There is some interesting game theory behind it that I don’t fully grasp, but the gist is people mint DAI by over collateralizing with ETH. So for example, you could lock $150 worth of ETH into the system, to take out a loan of 100 DAI. The extra collateral is to handle the fluctuation in the price of ETH.

Since DAI is pegged to the USD, it is still centralized in a way, but the same mechanic could be used to peg to the value of something else, like gold.

re: crypto, Proof of work VS proof of stake
@kristof @robby @g
I've been pondering if it would be possible to implement an interest based system to keep the currency stable. Negative interest if there are very few transactions and positive interest if there are many transactions, much like central banks stabilize an ordinary currency. I'm not sure the transaction frequency would be the right parameter, but the only other metric I can think of would be the trading value, which is external to the coin.

re: crypto, Proof of work VS proof of stake
@smpl @kristof @robby

As usual, there are some technical and political questions involved... what is technically feasible, and what is politically desirable.

On "traditional" money creation, with a politically engaged look, I found this book very useful: https://www.versobooks.com/books/2706-the-production-of-money

As for actual use cases, if the promise of high efficiency touted by the latest PoS systems is real (as I think it is), I I suspect the main benefit would not be in the transfer of crypto, but rather using this technology to record exchanges that take place elsewhere (anything, from actual trades in goods, customs duties, taxes, micropayments in place of ads online, etc. )

For use in public administration, see e.g. this (outdated, but with some inputs) https://www.oecd.org/fr/gov/administration-innovante/oecd-guide-to-blockchain-technology-and-its-use-in-the-public-sector.htm

re: crypto, Proof of work VS proof of stake
@robby @kristof reading this piece of news on the Tether stable coin I was reminded of this conversation https://www.economist.com/finance-and-economics/2021/02/23/tether-is-fined-by-regulators-in-new-york

re: crypto, Proof of work VS proof of stake
@g @kristof Looks like there is going to be a DAI style stablecoin on Algorand soon!

https://algorand.foundation/news/opendao