By Bitcoin switching from a Proof of Work consensus mechanism to Proof of Stake is never going to happen. Ok, article over — let’s go home. On a serious note, calls for this transformation are growing ever louder and from increasingly influential sources. Here are three reasons these people don’t know what they’re talking about.
Proof of Work is More Secure
There’s considerable debate about this. Ethereum claims that “Overall, proof-of-stake, as it is implemented on Ethereum, has been demonstrated to be more economically secure than proof-of-work.”
Considering that this claim was made before Ethereum even fully switched to Proof of Stake with “the Merge,” and that the Merge is currently less than a year old, it’s difficult to see where the basis of this claim originates.
It should also be noted that “as it is implemented on Ethereum” is an important qualifier here, as not all Proof of Stake consensus mechanisms are implemented in the same way.
Proof of Stake is not naturally secure: It doesn’t have the intrinsic security of Proof of Work because there’s nothing to keep it grounded in the real world.
For example, forking is naturally disincentivized by Proof of Work because to operate on both forks, you would need to split your mining power in half.
On a Proof of Stake network, forking would duplicate your stake onto both forks, meaning you can continue to operate on both forks with no problems. This is referred to as the “nothing-at-stake” problem.
It’s also far more difficult to centralize power on a Proof of Work network due to the fact that you need more than just capital to run a mining operation. You need the physical equipment and access to cheap electricity.
If someone else can acquire electricity at a cheaper price or has access to more efficient ASICs (mining machines), then they can produce more hashes than you can despite potentially having less capital.
A decentralized network is a more secure network because individuals have less of an ability to influence the network in their own favor at the expense of others.
Proof of Work is More Decentralized
As covered, a decentralized network is more secure than a centralized one. But security isn’t all that decentralization offers.
A decentralized network is far more censorship-resistant than a centralized one.
This is because it’s far easier for a government, financial institution, or regulatory body to exert influence over an individual or small group than a large network of individuals all over the world.
Although it has since made progress in rectifying the issue, the Ethereum network immediately saw a huge percentage of its transactions censored after the move to Proof of Stake.
It’s also the case that the SEC in the U.S. deems any coin on a Proof of Stake network to be a security, whereas Bitcoin is considered a commodity.
If Bitcoin were to move to Proof of Stake, it would immediately become a security and thus would be subject to much more intense regulation.
Decentralization is of the utmost importance to the Bitcoin mission statement. Bitcoin is supposed to be trustless, without third-party influence, and permissionless (i.e., uncensorable).
Proof of Work networks more naturally tend towards decentralization because diseconomies of scale create ceilings to the size of the largest mining operations, giving smaller operations a chance to catch up or at least keep pace.
In a Proof of Stake network, there are no such limitations. In fact, the opposite occurs. Those with larger stakes accrue more validating rewards, thus growing their stakes, and so on.
Proof of Work Gives Bitcoin Intrinsic Value
Critics like to claim that bitcoin has no intrinsic value. If Bitcoin ever were to become a Proof of Stake network, they might have a point.
As for right now, the Proof of Work consensus mechanism is actually imbuing each bitcoin with genuine intrinsic value.
Something can have value for a variety of reasons. If it’s useful, desirable (attractive, decorative, a status symbol), or if we all simply agree on it, anything can have value.
However, a more concrete method of determining if something has value is by asking what had to be expended in order to bring it into existence.
Gold has value for all these reasons. It’s useful as a store of value because it doesn’t tarnish or degrade, and also because it’s divisible. It’s attractive because it has a natural luster, a sheen.
But it’s also valuable because significant resources have to be expended in order to acquire it: We can’t just snap our fingers and produce gold. We have to dig it out of the ground and then separate it from the earth. Value has to be spent in order to get gold. In this way, gold is imbued with the value that had to be expended to produce it.
Similarly, bitcoin are imbued with the value that has to be expended by miners, firstly when the bitcoin was first mined, and secondly by the constant expenditure of miners keeping the network running.
Bitcoin has value because value (in the form of capital, real estate, and electricity) has to be spent in order to produce each bitcoin and maintain the network.
In a Proof of Stake network, none of this is the case.
To Conclude
| Proof of Work | Proof of Stake | |
| Security | Proof of Work offers more security because physical infrastructure and electricity consumption make it more difficult to acquire a majority of the network control; forking is also inherently costly | Proof of Stake is less secure because it is purely digital; wealthy participants can buy larger stakes with ease; there is no cost to forking |
| Decentralization | Proof of Work makes centralization difficult through diseconomies of scale, where larger mining operations create higher marginal costs | There are no diseconomies of scale in a Proof of Stake network; in fact, the opposite occurs; a snowballing effect makes it easier for large stake holders to gain yet larger stakes |
| Intrinsic Value | Proof of Work imbues bitcoin with intrinsic value because real value has to be expended to mine blocks and maintain the network | Coins/tokens in a Proof of Stake network are digital assets with no ties to the physical world; they can be created at no cost and therefore have no intrinsic value |
Proof of Work provides a multitude of benefits, these simply being the largest and most obvious.
Bitcoin is not Ethereum, nor any other altcoin. Bitcoin has a goal in mind: to replace the fiat-corrupted, government-dominated, corporate-serving traditional financial system with one that’s decentralized, censorship-free, peer-to-peer, and based on a digital commodity with genuine value.
None of these things is possible with a Proof of Stake network.
This won’t stop the critics. They don’t want to learn. They don’t care about Bitcoin’s ambitions. They’ll continue repeating the same inaccurate talking points for years.
But if you hear a friend or family member repeat these talking points, these three reasons why Bitcoin will never move to Proof of Stake might help you set them straight.
