Centralization: how everyone is trying to ‘solve’ a very old, very hard problem

Several weeks ago, I mentioned that I would explain why Bitcoin is the only commodity currency that can exist.  I am not doing this topic enough justice, but I will touch briefly on this before moving on.  Succinctly, the reason is that commodity currency is always spontaneously created in a locality in order to facilitate indirect exchange in the immediate community that it serves.  This has been shown in the past, with gold, silver, and to a lesser extent, sea shells, jade, glass beads developing as the commodity used for exchanges.  The extent of the geographical usage of a certain type of commodity money, was based on how far its reach extended while still retaining its characteristics necessary to perform as money.  For instance, seashells didn’t have too large of a locality, because pretty soon as the economies that it served got larger and larger, people found out that seashells were actually not scarce enough and hyper-inflation destroyed the value of the commodity as money.  Another issue that physical commodity currencies faced was that due to their physical form, their circulation was very much limited to the extent that they could be passed from person to person. This meant that societies isolated from each other (economically) could individually develop their own preferred commodity to be used as money.  This is how it became the case that some societies settled on a silver standard while others settled on gold.  Both metals possessed all the necessary characteristics required of money, and the only reason that more than one standard evolved was due to the fact that the societies were isolated from each other, and thus had no need for inter-commercial connections.  This fact also illustrates how economies will inevitably settle on one standard, barring physical restrictions.  Bimetallism, where both gold and silver were simultaneously used as the official unit of money only developed, (without the help of any government) due to the limitations in the ease in which gold could be divided into smaller portions, and as such silver facilitated small scale commerce while gold handled the large value transactions.

Fast forward to the age of digital currencies.  The locality of Bitcoin is the internet.  There is no hidden stash of bitcoins to be suddenly unearthed somewhere, so we can rule out a sudden unexpected jump in the supply of the commodity.  This means that, for the first time, we have a commodity which has a very stable well-defined supply curve.  From this it follows, that Bitcoin should at the least have the potential value stability as gold had in the past. Additionally, since the locality we are concerned with is the internet, whose reach is global, Bitcoin will suffer the issue of having competition from isolated societies that can compete for its usage, the way gold had to contend with respect to silver for a long time.  Thus, as Bitcoin already has a very solid economy and usage on the internet, along with the fact that the divisibility of Bitcoin is not an issue given its digital nature (if we ever needed sub-Satoshi value transfers, side-chains would be able to facilitate this), this is why I believe that Bitcoin is the only commodity money that the internet will ever need.

Centralization

A hot topic in crypto currencies circles currently is the topic of centralization.  This topic is hotly debated in both Bitcoin camps and other non-Proof of Work projects.  Collectively I will categorize them as ‘PoS’ systems standing for ‘Proof of Stake’.  The reason this topic is so hotly debated is that any discussion that involves it will inevitably gravitate towards politics, democracy, and the preservation of individual rights and freedoms, and we all remember from our childhood family dinners that when politics are brought up at the table an argument was sure to follow.

Essentially what blockchain technology is, is the ability of a decentralized network system to be able to store a database of information (a ledger) in a synchronized way without any inconsistencies arising from the peer-to-peer nature of the network. Both PoS and PoW systems address the issue of consensus in a P2P network, which is to say, they govern how to ensure the integrity of the data, with peers freely joining and leaving the network.

I will try to address the criticisms for and against PoS and PoW, but first, some detailed explanations of each are in order.

Proof of Stake

Decentralized consensus systems rely on incentive systems to ensure honest actors prevail over bad actors.  Proof-of-stake essentially attempts to solve the incentive problem by requiring actors to ‘stake’ or lock up some of their in-system funds in order to participate in a lottery in which the winner is selected to ‘win’ all the fees from the transactions that were confirmed in the last block or update.  Some variations on this include systems that distribute the winnings in proportion to the amounts that were staked to all participants in the lottery, which essentially amounts to a deposit banking system, where as unneeded cash reserves are locked for a time, which serve to produce an ‘interest’ rate paid to the depositor.  These deposits are not on-demand (they are locked for a time duration) and thus constitute a full-reserve banking system model.  Without the requirement of work, PoS systems promise to be able to confirm blocks at a much lower external cost and faster than PoW systems as there would be no electricity required over the normal amount needed for just running the validating node itself.

Proof of Work

This is the system which Bitcoin uses, and as I described in a previous post, the work involved in creating the coins allows it to mimic a commodity money economy precisely.  In fact, if gold or oil reserves were completely known a-priori, (no sudden discoveries of new reserves somewhere, all reserves on the planet identified) then the evolution of gold from shiny metal to being the world reserve money would have followed the same path as Bitcoin, albeit on a slower time scale given that technologies to mine gold more efficiently took a lot longer to develop and required a lot more capital resources to develop.  This work expended in order to maintain and secure the network consensus, is an external cost to the system (in kW/h in this case) and the reward is paid for in internal network coins (bitcoins).  Unlike PoS, the amount of weight or influence you posses as a securer of the consensus system is not a function of the wealth that you have in the system (represented by your stake) but instead by the amount of external work that you can put into it at any given time (in kW/h and hashes/s). This cost to maintain the network being external, you will see, is the key to why PoW systems are in the long run more likely to succeed in creating a stable money system.  But for now, let’s address the individual pros and cons of each system.

The Problems with PoS

PoS coins are equity, not money.

I have found that a very accurate analogy for PoS systems is that of shareholders equity of a company.  The bigger share you have, the more voting rights or power you have to determine the companies future.  Your voting rights are proportional to your share ownership and dividends are paid out to shareholders.  One important fact that you will note is that while equities definitively have value, that value is tied to the health of the company, and certainly a share has little or no exchange-value/money value, because it isn’t used as a common means of facilitating commerce.  Indeed even if we could trade equity as freely as we can trade bitcoins or cash, I do not believe that it would be usable as a money-substitute, for reasons similar to the one against widespread credit money, simply the lack of people willing to accept it due to counter-party risk, would prevent it from getting widespread adoption.  Now there are some key takeaways here in the comparison of PoS systems to equity in a corporation.  Firstly, corporations are highly centralized entities;  how many of you who have worked at a large corporation and can say that internal politics were not an issue at work?  Fact is, when people are incentivized to expand their own shares in the system then there is a lot of infighting and manipulation of the rules of the system to one’s advantage.  The game inevitably (in a poorly run company) becomes one where the upper management is tasked with keeping the lower ranks of employees complacent and happy while they continue to use the system to enlarge and ingratiate themselves and their friends. If you think this sounds familiar, then you are right my friends, this is exactly how politics of government work. (yes, even in democracies!)  PoS systems mimic this exact system, because the rewards given to those who maintain the system are proportional to the wealth and power the parties hold in the system itself.  It’s the rich getting richer problem that those socialists always rant on about.  Pretty soon, given lack of competition, one ruling party will become incumbent and provide most of the security in the system, and you would have a mirror of our centralized political system in the real world.  This can be the only logical conclusion to any PoS based consensus system.

Advocates of PoS systems argue that unlike government, who’s rules are hard to change, with crypto currencies, they can reserve the right to tweak the system parameters as to avoid the centralization problems we see in the real political world.  I am not convinced that such a solution has ever been found.  Think about it, we as humans have been iterating over many different political systems in the last 6000 years of recorded history.  We have moved from centralized systems of monarchy, to federated systems of feudalism, to socialism, to capitalism, and to date we still have not found a completely ‘fair’ solution which is incorruptible.  Do you believe that a couple of computer science and math academics will suddenly be able to solve this problem which has plagued humanity since the emergence of civilization?  Perhaps, but I’m not going to bet the farm on it.

Staking incentives are economically biased

Being a proponent of free market economies, another issue that I see with PoS systems is that the staking process is inevitably linked to the fiscal health of the system.  What this means is that how much people will stake to help secure the network is akin to the decision of how much value would you save in the bank vs invest vs spend.  As we have seen, staking is essentially locking up an amount of value for a certain period of time, such that you can earn a return or interest on that amount.  This boils down to a lenders vs savers game.  As staking can be seen as a risk-free rate of return that the network gives you, as the demand for cash in the micro-economy rises (interest rates and investment returns rise), then you will see less people staking and the security of the network is adversely affected.  Also, as there is a greater incentive to stake with the more stake you own, you will see a gradual gravitation of large holders of the coin to simply stake and ‘collect rent’ from the network.  In the real world, as money becomes cheap, interest rates fall (it becomes increasingly easy to obtain capital from investors) and as such the deposit rates at savings institutions fall in step, thus reducing the incentive to park your money in a bank.  This creates a balancing effect between the supply and demand for money because as more people demand money, the supply of it becomes more available.  On the contrary, in a PoS system, where the ‘interest’ on deposits are paid for by fees of transactions, the more transactions that are processed, the more interest would be paid to stakers.  Thus, quite backwardly, the more money which is used up in fees and thus increasing the demand for money, then the less likely it would be made available by the people who control large sums of it, because they can increasingly make more money by just locking in with the richer risk-free rate of return obtained by staking.  This creates an economic bias to hoarding over spending.  The rich will in general hoard more while the rest will be forced to spend more (in an attempt to become rich).  As a student of free market Austrian economics, I do not believe putting any bias on the side of spending or hoarding is a good thing.

The incumbent whale problem

Another problem that PoS suffers heavily from is what I call the incumbent whale problem.  What this means is that a sleeping whale, with a lot of stake in the system (be it that they were an original founder, or an initial adopter who made a lot of gains in the system) can then immediately become an influential player in the stability of the system.  Imagine if a founder of a PoS coin (whether it be an individual or some foundation) with a significant amount of coins comes into the system and becomes a large part of the validating power due to the large stake that they are willing to devote to the staking process.  This means that at anytime, a large player can jump into the staking game, and adversely reduce the profit of all the little players who were in the stake pool.  This makes the process of staking your coins a very volatile and risky one, and this would likely discourage many would-be stakers from putting in too much of their value into the staking process, which reduces the security of the consensus process.  Compare this to a PoW system like Bitcoin, where even if the largest stake holder (presumably Satoshi Nakamoto) were to come into the system now, there would be nothing that he could do to affect the system stability directly.  The only thing which is in his power to do would be to sell off his large hoard of coins, into the market and depress the price of the coin.  This is a perfectly legal and valid activity from the free market perspective, and the size of his stake had no direct bearing in his ability to harm or profit directly from the system itself.  This is exactly the same reason why hard money advocates sing the praises of the benefits of gold over fiat currencies.  A large holder in gold has very little influence over the gold mining industry.  There is one argument that examines the risk of a large holder in gold paying off the gold miners not to mine, and we will address this particular criticism later on.

A secondary issue with the whale problem is that when an actor who has a large stake in the system, if caught attempting to defraud the system, will lose only their staked amount.  This means that an actor with a very large pool of coins can statistically always win over those with less stake.  This is similar to a game of Texas Hold’em poker where going ‘all-in’ is not permitted.  Basically the whale on the table only needs to out-bet his competitors by the minimal amount in order to ensure that he continues to maintain (and increase) his lead over the others.  Of course in this case you don’t win the stakes themselves but only the fees of the processed transactions in the block, though the premise is the same.  Additionally, if you were to blatantly commit fraud somehow either by filtering transactions that do not pay you or your conspirators, or by deliberately not relaying some transactions and you are caught, you only lose your stake, and are free to continue to try again next time with a new stake.  Compare this to a PoW mining pool which is caught in act of outright fraud; they would lose all their members immediately and would be forced out of business.  This is the situation I mentioned above where a rich gold holder pays a mining company not to mine, which of course we have not seen successfully employed in the real world.

Defenders of PoS will claim that they will and can enact rules into the system that would punish those who break the rules so as to provide enough of a deterrent to these would-be bad actors from doing so.  Even if that were true, (which once again, would be a remarkable breakthrough in legal and political systems that have yet to be solved in real life) that inevitably mixes the monetary system with the legislative, judicial and enforcement systems.  If we have a hard time agreeing on making small changes in just the economic rules of a cryptocurrency, then I don’t have much faith in the ability of a couple of math nerds to come up with the right rules of criminal justice.  And even if they did manage to come up with a perfect set of rules, we have already devolved our system into one that relies on a central body (the developers) to make the rules.  To say that a PoS system can come up with a set of rules to make sure people act fairly is to give up on the notion of a decentralized currency completely.  

There is a very clear delineation between the things that the developers of Bitcoin need to deliberate on (what size of the block to use, what confirm cycle time to use) and those of what a PoS system must decide on (how to detect, determine guilt and punish those who stake and defraud the network) An analogy would be that one is tasked with deciding on how wide to make the roads and railway tracks for practical reasons, while the other is tasked on deciding what is illegal and what rights of the participants in the system must be protected, and how so.  To mix these into the same bucket is to ignore the fundamental socio-political issues surrounding PoS staking.

The criticisms of PoW

Now that I have thoroughly elaborated on the criticisms of PoS, I shall turn to the common criticisms of PoW systems, which have been so emphasized by many media outlets, that they should come to no surprise to the reader to see them represented yet again.

PoW mining pools breeds centralization

Many people will say that due to the centralization of mining pools, this creates a centralized PoW system.  (We will assume for the moment that all proof of work algorithms will inevitably centralize for the sake of debate).  The truth is yes, while PoW does not guarantee the system to be free of centralization, much like the gold mining cartels of yore, if a magnate gold tycoon were to buy up all the mining companies they would indeed enjoy a monopoly over the production of gold, and thus the money.  But if that were indeed true in theory, then why did it not happen in our history?  Surely we had enough time since the onset of modern civilization to observe this happening if it indeed was possible.  Perhaps it was actually attempted several times in the past, but it failed and thus we never heard of it.  A clue to why it doesn’t happen can be seen in the diamond industry.  DeBeers owns a monopoly on the mining and sale of diamonds and that has severely limited it’s use as a money. Nobody wants to hold too much ‘storage value’ in a medium which has one controlling party at the reigns.  Correction, that’s exactly what we have with the Federal Reserve Note.  The difference is that with fiat we have the government’s legal tender laws forcing our acceptance of it.  So we can see that centralization of control of a commodity money will destroy its value and thus its use as a money.  PoS defenders however will rightly say that although it has never happened, it cannot be mathematically proven that it cannot happen in the future.  This is a constant source of debate between the mathematicians and the economists.  Take for example, the historical fact that we don’t need to prove that hyperinflation can happen to know that it will happen given the right conditions.  The systems in economics depend on the subjective behaviour of billions of individual actors, and to assume that we would be able to accurately model them with any degree of accuracy is a fool’s bet (at least given current computational resources).  To say that it cannot happen because we cannot prove that it will is an mistake.

PoW doesn’t solve the problem of centralizing powers, but it at least decouples the miners so that they are incentivized only to keep their business running.  If they sellout and defraud the network, then miners lose their users.  Significantly, mining pools are businesses.  These businesses exist to turn a profit (whether in Bitcoin or fiat).  If a business is found to be a bad actor, there is an extremely effective deterrent that has been employed over the centuries that has proven more effective than any government regulation ever could: the boycott.  Pool operators are businesses with clients.  Their clients are the actual miners.  If the pool operator ‘sells-out’ to a bad actor, for instance, by leasing out or lending their hashing power to a secret party for the purpose of a 51% attack, then they risk losing all of their clients when they are found out.  Indeed they would be incentivized to keep the value of the coin as high as possible in order to profit from the fees they are collecting.  The key here though, is that they are running a for-profit business.  In a PoS system, the large staker may be an individual, and has no business model or revenue stream to protect.  In addition, they can recover from a failed attempt to defraud the network and try again later on, losing only their staked portion for the failed attempt.  From the perspective of the miner/staker, the risk of defrauding the network is much greater for the miner of a PoW system, as it is represented by the capital investment in their mining farm hardware (paid for by external fiat money), and the future revenue stream in the fees.  For the PoS staker, it is just the amount of in-network coins that they have presently staked.  It doesn’t take a lot of analysis to conclude that a staker will have much less at risk than a large miner when trying to defraud the network.

PoW isn’t perfect solution, but at least it is one that has been shown to work historically in the past with gold.  We know that commodity money can become the world reserve currency on its own merit alone.  That is, at least until a government comes along and makes it illegal and forces us to use their paper fiat money instead.

Externalities

In conclusion, the differences between PoS and PoW boils down to one of externalities.  In a PoS system the costs and rewards are internal, while in a PoW system the costs are external, while the rewards internal.  This complete disconnect with the outside world found in a PoS system lends to dishonest gaming due to ‘free simulation’ (it costs nothing or very little to attempt to game the staking process in your favour), and an incentive system that rewards those who have ample resources in the system more than those who have scant resources.  PoS hardliners and I agree on one thing, which is that PoS systems tightly couples the stakers with the health and welfare of the system, while in PoW the miners are somewhat isolated from the politics of the system and are driven only by for-profit motivations.  Where we disagree is that I believe that this separation is what keeps the number of bad actors in PoW miners to a minimum.  They will not do anything that would serve to undermine their future revenue stream of their mining business.  In comparison, the tight coupling of the PoS staker to the network and his individual influence within it incentivizes him to manipulate the system to increase their own stake and thus power within the network.  Thus PoS runs up against the exact sociological problems that we experience in present day political/corporate systems.  Though they argue that they will be able to contrive rules and punishments in the system to deter any such bad behaviour, (indeed the exact behaviour which a PoS system implicitly encourages if a rational economic actor were to try to maximize their profits and stake) we have seen that no satisfactory system of governance has ever been developed to control corruption in the real world, and the simple fact that we have to create governance rules in the system itself implies that the developers have central control of the system and can be bribed or corrupted themselves by the bad actors.  (Or a worse, and more likely scenario is that the large stakeholders in the system are the developers themselves).  This is essentially why I do not see any possible future where a PoS system can become a global money system.  PoS systems may enjoy some usefulness (and thus their coins some inherent use value) as an application coin, but by no means I see a PoS or a stake based coin ever becoming accepted as a universal currency.  The reasons for which are not technical, nor mathematical, and need not be proven.  They are economical in nature and in such things, as in those relating to human nature, history is the best predictor.

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4 thoughts on “Centralization: how everyone is trying to ‘solve’ a very old, very hard problem

  1. From the article and the discussion, I have learned and gain inspiration to think about monetary aspects in PoS and PoW, thank you. I have some questions, could you answer these questions ?

    Q1. For instance, seashells didn’t have too large of a locality, because pretty soon as the economies that it served got larger and larger, people found out that seashells were actually not scarce enough and hyper-inflation destroyed the value of the commodity as money.

    > The reason of hyper inflation problem about not-scarse commodities is from the people who use can seashells can not see the seashells’ issue limit ?

    Q2. Imagine if a founder of a PoS coin (whether it be an individual or some foundation) with a significant amount of coins comes into the system and becomes a large part of the validating power due to the large stake that they are willing to devote to the staking process. This means that at anytime, a large player can jump into the staking game, and adversely reduce the profit of all the little players who were in the stake pool. This makes the process of staking your coins a very volatile and risky one, and this would likely discourage many would-be stakers from putting in too much of their value into the staking process, which reduces the security of the consensus process.

    > that is the problem, however in the PoS system influential player can be seen transparently. So it is not sudden operation by large player, small stakes can predict the scenario ?

    Q3. In conclusion, the differences between PoS and PoW boils down to one of externalities. In a PoS system the costs and rewards are internal, while in a PoW system the costs are external, while the rewards internal.

    > I am not agree with that, because there are the human cost to make the system.Free simulated game will not be used as a media of exchange (like many bitcoin copycats), so it can’t be counted as a PoS system. If people wants to simulated game as a actual media of exchange, they needs to spend time and money to develop, also maintaining.

    Q4. PoS systems tightly couples the stakers with the health and welfare of the system, while in PoW the miners are somewhat isolated from the politics of the system and are driven only by for-profit motivations.

    > I agree with that, but pointing out about political weakness of PoW is the miners’ centralisation because of the isolation. So it’s easy to bribe them to change the consensus from time and money point of view. And will this be much more problem politically?

    E.g. About money aspects, currently the bitcoin miners incentive roughly $1mil per day for $3 billion market, so someone who bribe $2 mil per day, can buy the consensus totally.
    However in PoS system, if the system is $3 bill market, then he needs to $1.5 bill minus his stake needed to buy the consensus. And more time is needed to buy the consensus power, because of miners centralization.

    And time perspective, in PoW bribing operation requires small time to do. Because by bribing to 3, or 4 mining pool, consensus can be modified maliciously. However in PoS system, will be more difficult to cheat because even in small stake person, they can actually gain profit from the “Stake”. So briber has to bribe more people.

    • Thank you for your response and comments. Indeed my goal here is to have more people think about these things without the bias of a for-profit company’s marketing spin. The issue of digital currencies as money is a new development and the input of intellectuals from all disciplines are needed to make sense of this nascent technology. I will try to address your questions in turn.

      Q1: Not exactly. Hyperinflation isn’t caused simply because the people can’t see an end to the issue limit. It is a matter of (dare I say) faith in the future purchasing power of the money being stable as a whole. It is generally caused by people noticing the general rise in prices and the lowering of living standards in their recent memory. In the case of seashells, a bunch of explorers, visiting some islands which used shells, quickly figured out that collecting shells elsewhere, they could basically buy up whatever they wanted from the natives. Soon supply of goods was insufficient to serve demand and the value of the shells dropped to worthless due to value of goods rising drastically vs shells. When enough foreign explorers did this on a continual basis, the natives soon were forced to move onto using another money which had the required scarcity requirement, the gold coins that the foreigners brought over or foreign goods themselves (direct trade). In most cases they gave up their local commodity money and adopted the money of the foreign powers the more they traded with each other.

      Q2: There are two mitigating issues here, firstly, most PoS stake holders are not publicly known. In fact, many PoS systems openly praise their ability to keep all participants anonymous. Since PoS systems are essentially experimental political systems with equity representing voting rights, having anonymous non-culpable politicians is certainly an invitation for rife corruption. Secondly, even if the stake holders were indeed public and well known, we still currently lack a sufficient legal framework to hold stakeholders responsible for their actions if they were to defraud the network participants. The legal status of digital assets are still in a grey area at this present time, and I would imagine it would take much longer for them to be able to treat pre-mined or PoS tokens created out of nothing as property that can be claimed for damages in a court (I await such a ruling where warcraft gold losses are awarded as damages). What it basically boils down to is that PoS systems are little experimental micro-economies where developers get to play ‘government’ and ‘central banker’. While intellectually interesting and important as a research tool, I believe that one must be careful to realize that legally they are very risky, and as such there is a huge barrier for people risking a significant portion of their livelihood capital into it. It has the same risk profile as an penny stock equities, where the product is not fully functional, but an experimental service or network with no present usage. Where as building a money out of equity is a new concept, building money from a commodity isn’t, and thus I see PoW as a safer path to take.

      Q3: Games also take a time and money to develop. Just look at the video game industry for instance. In fact, in large economic simulation games such as EVE Online, they have their own economist on company payroll. Games take effort to develop, but you can be certain that the incentives of the game designers are to make the game the most profitable for them (external benefits). RMT or real money transfer of in game wealth into or out of the real external economy is highly illegal for mostly all games due to the fact that it adds the externality of real-world wealth and politics into the virtual game economy, destroying the appeal of the game for what it is, entertainment. Once again, you only need to look at CCP and EVE Online to see how political the game design process has become; they have a democratic council of game stakeholders (rich in-game ‘lords’) who have a say in how the game rules are changed. This is a glimpse of how PoS systems will inevitably develop, with large stakeholders holding influence over the developers, and a political system forming. With PoW however, the miners really don’t care about the politics of the system. You can count on the fact that the only thing they care about is the profit they can make by improving their mining ability and technology, which is external to the system.

      Q4: Extending from the previous answer, you may be able to bribe a miner here and there, but you will never be able to bribe all of them. I would imagine it equivalent to bribing all your politicians. Sure you may be able to get away with a traffic cop here and there, but in order to bribe everyone in the system, your costs would skyrocket very fast. This is because miners are only acting with the interests of their business in mind — which is external to the politics of the system. If I was a mining pool and you came to me with a bribe, I would be considering the possibility that you were a spy from a rival pool and that me taking your bribe would leak and make media headlines and destroy my reputation and business, benefiting you, my competitors. To accept a bribe for ‘little or no cost’ is an argument that many academics make about PoW, though they ignore real world economic dynamics. (partly because they are academics and are not running a multi-million dollar mining business — and partly because you can’t model the subjective choices of individual people that accurately).

      I think in a PoS systems will eventually see a lot more centralization than PoW mining pools. You will have the possibility of bribes in all societal systems, the key difference is that with PoW you can more or less count on them acting honestly, lest they risk losing their business. But in PoS, we have no such guarantees, especially when the folks the bad-actors would be bribing are the academics and developers themselves. PoW is closer to free market capitalism, PoS is more akin to Statism. (or Feudalism as the Lords and lawmakers were the most incentivized to maintain the system)

      Centralization is a force of nature. You can’t solve it, the best we can do is limit it’s effect. This was the consensus made by the entire world back at the turn of the century, (settling on the gold standard, even given the possibility of miners being bribed and the unpredictable supply of gold, discovery of new reserves, huge waste of energy and effort in mining), but the powers of centralization eventually had their way, convinced the government to go along and took us back to a PoS money system (fiat money/printed coins, central banking/dev control, and campaign contributions/staking) and now we find ourselves here.

      • Thank you for replying detailly I also think a lot about the things, mainly about economic and potical separation.

        Q1
        > Thank you for explaining the island example.That is interesting, if there is no authority, or country to assure the value of bad money, there will be only good money and people will use good money as a money without much saving it.

        Q2
        >>There are two mitigating issues here, firstly, most PoS stake holders are not publicly known. In fact, many PoS systems openly praise their ability to keep all participants anonymous. Since PoS systems are essentially experimental political systems with equity representing voting rights, having anonymous non-culpable politicians is certainly an invitation for rife corruption.

        > About first point, ID anonymity is must for preventing collusion. but at address-balance level, they are transparent.So people having small stakes can predict the large whale coming ?
        And even if small people are staking their coins, they don’t lose their coins for that. Then that is like high volatility interest rate level issue ?

        but the powers of centralization eventually had their way, convinced the government to go along and took us back to a PoS money system (fiat money/printed coins, central banking/dev control, and campaign contributions/staking) and now we find ourselves here.

        About second point, I don’t think so because government approve IT companies’ large IPOs with large tax and the share is same as PoS stakes. And according to the Q4 answer above, the government who likes centralization will support the PoS system, in that case law will be made suitable for PoS system ?

        Q3
        >> About gaming and proof of stake Once again, you only need to look at CCP and EVE Online to see how political the game design process has become; they have a democratic council of game stakeholders (rich in-game ‘lords’) who have a say in how the game rules are changed. This is a glimpse of how PoS systems will inevitably develop, with large stakeholders holding influence over the developers, and a political system forming. With PoW however, the miners really don’t care about the politics of the system. You can count on the fact that the only thing they care about is the profit they can make by improving their mining ability and technology, which is external to the system.

        > I think miners not only the profit by improving thier mining ability and technology, which is extenal to the system, but also care about the politics of the system. It is because if the system has changed by bribing they can make moey

        Q4
        About bribing and PoS future I would like to say 5 points, sorry for long points. However where are the economic power and political power is the most important point I come to think. And should think about meta consensus protocol as Vitalik Buterin points out his new HPOC paper.

        1. Accept bribing lose the miner’s business ?

        >> This is because miners are only acting with the interests of their business in mind — which is external to the politics of the system. If I was a mining pool and you came to me with a bribe, I would be considering the possibility that you were a spy from a rival pool and that me taking your bribe would leak and make media headlines and destroy my reputation and business, benefiting you, my competitors. To accept a bribe for ‘little or no cost’ is an argument that many academics make about PoW, though they ignore real world economic dynamics. (partly because they are academics and are not running a multi-million dollar mining business — and partly because you can’t model the subjective choices of individual people that accurately).

        > If accepting bribes loses the miner’s reputation, it is not only about the miner’s reputation, but also entire miners’ reputation.
        So the miner who would like to lose rival miner’s reputation will not achieve the purpose, because he will lose some his reputation also.

        And about the miners business, I wonder if their reputation is important for their business. It is because they just calculate hash by their hashing power, or selling their hashing power to the world. PoW system doesn’t care about who mine my system.

        So the miner who accept the miner will assume the equibillium. http://imgur.com/90bF5yl And then, the miner can assume the briber is True briber, and he will choose “Accept”.

        2. Bribing in PoW takes much more cost as PoS ?
        >> Sure you may be able to get away with a traffic cop here and there, but in order to bribe everyone in the system, your costs would skyrocket

        > By the reason of 1, in PoW system miners can easily accept bribes, then lower price bribing is possible

        3. In PoS, political incentive and economical incentive at the same place?
        >> I think in a PoS systems will eventually see a lot more centralization than PoW mining pools. You will have the possibility of bribes in all societal systems, the key difference is that with PoW you can more or less count on them acting honestly, lest they risk losing their business. But in PoS, we have no such guarantees, especially when the folks the bad-actors would be bribing are the academics and developers themselves. PoW is closer to free market capitalism, PoS is more akin to Statism. (or Feudalism as the Lords and lawmakers were the most incentivized to maintain the system)

        > About the bribing and collusion, miners and large stakers can change system by bribing to developers, and they can modify it for their profits. And also they have the risk losing their value by the bribe being revealed. And about the risk, in PoS system have more risks, because generally large stakers lose more money than miners who have equivalent consensus power if the trust to the system has been lost.

        Then the core thing should be thought about is how much impact consensuses change can affect by bribing. So in PoS system, if the consensus power is maliciously used, the area of modifiable past consensus blocks can be changed is limited by block numbers and some time limit.

        4. Political power incentive

        > I think current Bitcion core developers are almost all volantarily doing their hard development job without economical incentives. However if we reason why they are doing the hard job, there will be political incentive, or say “the future is on their sholders” incentive.

        There is enough reason for a person to do some hard job without money if he can make the future of the world.If we accept that kind of incentive’s existence, more easily to imagine the system where developers can work hard without colluding, and without large stakes, caring about their system’s trust and beauty.

        5. PoS will be centralised ?

        >> I think in a PoS systems will eventually see a lot more centralization than PoW mining pools. You will have the possibility of bribes in all societal systems, the key difference is that with PoW you can more or less count on them acting honestly, lest they risk losing their business. But in PoS, we have no such guarantees, especially when the folks the bad-actors would be bribing are the academics and developers themselves. PoW is closer to free market capitalism, PoS is more akin to Statism. (or Feudalism as the Lords and lawmakers were the most incentivised to maintain the system)

        > I think also in PoS case, when the academics and developers accept bribes and it comes to light, they will lose reputations and lose their business. Because they will lose users’ trust on the PoS system they develop. And the loss is more rapidly because user will easily think PoS developers make the system for themselves.

        However in PoW system, users doesn’t much care about the miners collusion, because miner only changes for the bribers benefits and miners benefits, they don’t care about the total system. Normal users are seldom damaged from the collusion.

        If it’s not on the article scope, that is sorry, but one more thing I would like to think about is PoS and PoW is not only for monetary system. That can be used for smart contracts, IoT, auditing company, many things.
        So the history about money and finance does not always predict future of the system. E.g IoT must be decentralised for it efficiency. So future can be decentralized.

        • There are a lot more questions in your comment than I have the time to space to address here, perhaps if you are on the coinchats or BTT then we can discuss more fully. In short though, mining pools are businesses, and their customers are the individual miners. If I was a subscriber to a pool and my mining pool operator proved to be dishonest I simply will switch my hash power to join another pool. Additionally, mining pools which pay for their hardware by way of socializing the capital needed to acquire the hardware would instantly be out of business.

          I will always have more trust in a for-profit company to act in the interest of their businesses’ health, than I would have in an individual actor (large staker) who acts in the interest of only increasing their stake. Whereas both have the basic incentive to keep the system running (to preserve the value of their profits/stake), only the miners have the long term incentives that comes with running a business, where the staker can be 100% selfish.

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