Comment by lalaland1125 | Hacker News Reader

Comment by lalaland1125 | Hacker News Reader

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This is actually addressed in the article.

See section: IS A “WORK-INDEPENDENT” PROTOCOL POSSIBLE?

> If any cryptosystem is to periodically release coins, without immediately creating an incentive to “waste” an amount equal to the value of those coins, the cryptosystem is going to have to release the coins in a manner which is totally independent of all possible human activities. The coins will have to be rewarded on a completely effort-blind basis. The coin-reward must have a Spearman correlation of zero with everything that mankind could influence.

If you can make it so that there is no way for human influence to affect who gets the coins, then of course marginal revenue will not necessary approach margincal cost. However, it's quite hard to design a system that doesn't have at least some way to influence who receives the rewards. And once you have some way of paying to modify the rewards, then marginal cost start creeping closer to marginal revenue ...

You're right, I missed that, but

> The coins will have to be rewarded on a completely effort-blind basis

He's right that an effort-blind system is impossible, but that doesn't matter as long as the expected costs of influencing the block reward exceed the expected benefits. And it is is fact possible to design a system where the expected costs will always exceed the expected benefits, so putting effort toward influencing the block reward is unprofitable.

The profitability of a PoS grinding attack depends on the transaction fee, the minimum account age, and the certainty with future blockchain states can be predicted. In a well-designed PoS system, those variables will be chosen such that grinding attacks have negative expected value.

> And it is is fact possible to design a system where the expected costs will always outweigh the expected benefits,

This is the key point, and also why the author's analysis is much too broad: as stated, the argument applies to all social structures in general.

For example, under the author's analysis, PoW itself should not be able to exist, because if $10 of economic value is generated by the blockchain, then at least $10 of energy needs to be burned in order to keep the blockchain secure. This is wrong; it ignores the high real-world cost of dispersed attackers to acquire the (dispersed) surpluses from an attack.

Yet we see that in practice social structures exist and produce net surpluses greater than their maintenance cost (in fact, these two facts are equivalent, since a social structure that did not provide an energetic surplus would not survive in dynamic equilibrium).

The ability to punish rule-breakers as a large multiple of the magnitude of their attempted rule-breaking is what allows social structures (including markets) to gain the necessary leverage; otherwise there can be no surplus derived from creating structure, because to get $1 of social surplus, you need to burn $1 of surplus.

Therefore, the real question is whether dPoS creates structures with higher leverage to punish cheaters than PoW.

One other thing to keep in mind is that cost also includes the liquidity cost of staking coins. You are literally printing more lottery tickets for every additional amount of coin you stake. And liquidity cost is a real cost as you could have instead invested that money into a money making bushiness. So marginal cost can also approach marginal revenue in terms due to liquidity costs as well (grinding attacks aren't necessary).

That's true, but PoW currencies have the same opportunity cost -- if you buy Bitcoin you can't invest the same funds else.

Let's say you were forced to invest all your savings in either a PoW or a PoS currency; no other investments are possible. Say they both have the same block reward, which is essentially inflation tax.

Since you'll have to pay inflation tax either way, wouldn't you rather invest in the PoS currency, where the tax is redistributed to stakeholders including yourself? Rather than the PoW currency where the tax goes toward hardware and electricity bills.

> That's true, but PoW currencies have the same opportunity cost -- if you buy Bitcoin you can't invest the same funds else.

That's simply not true. You could potentially loan out your Bitcoin to a company which would play to use that money to create a profitable business. (Of course, it's a bit trickier to do that with Bitcoin due to the deflationary nature, but that's another story.)

When you stake your coins, that's not quite possible.

True but at the end of the day, someone is going to be holding the coins, and that entity is better off holding PoS coins that PoW coins.

We can tweak the scenario to say that you're forced to buy and simply hold one of the currencies, without loaning them out or otherwise touching them for 5 years. Then clearly PoS has the advantage.

There's a third possibility in your example though: Invest in mining the PoW currency.

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