More than eight years in the making, it’s hard to believe that the world’s second-largest blockchain transitioning from proof-of-work to proof-of-stake (PoS) is news. Not because it finally happened, but because after all this time, they still didn’t figure out that proof-of-stake is not the answer they’ve been looking for.
The truth about proof-of-stake
In an ideal world, proof-of-stake solves one of the digital currency industry’s biggest problems—the infamously high carbon footprint of block reward mining. Digital currency’s excessive energy consumption is a well-known fact and one that has led to proof-of-work (PoW) becoming synonymous with outrageously high energy expenditures. But this conflation doesn’t provide an accurate picture of PoW or PoS.
Proof-of-work blockchains were designed to scale to provide the security and interoperability required to improve and replace existing currency exchanges. Scaling proof-of-work to allow more transactions per block per second significantly reduces energy consumption by default. That a simple change in consensus mechanism will provide a more sustainable, affordable, and scalable protocol than proof-of-work is baseless.
That’s because proof-of-stake networks like Ethereum’s Beacon Chain aren’t blockchains. They’re distributed ledger networks that mimic the structure and processes of real blockchains without any utility, security, or scalability. So, what does PoS actually do? Precisely what its name suggests—it centralizes power back into the hands of rich stakeholders.
Ethereum’s imposter syndrome
Proof-of-stake is nothing more than proof of oligarchy. It establishes a validation system through which a small group of people with the most money has control over the network. Where PoW distributed objective consensus to miners outside of the network, PoS consolidates power to a subjective, in-network minority. This is clearly the opposite of a decentralized, peer-to-peer network.
What’s more, even though the transition to the PoS Beacon Chain was seemingly smooth, Ethereum is still sacrificing the robust security protocol needed to protect its users. Proof-of-work was created to be the most secure system in the world. It eliminates the possibility of double spending, protects against Sybil attacks, and allows for a system of validation that exists outside of the network. Switching to any other consensus model is sacrificing security, and in the case of PoS, you get nothing in return.
Yes, PoS is assumed to use 99% less energy than PoW, but this is little more than an idealistic theory because no system yet exists to measure the carbon footprint of PoS. This means that as damaging cybersecurity breaches continue to make headlines, Ethereum owners accept substantial risk in exchange for ‘projected returns’ that aren’t based on any factual assumptions of the new economic dynamics.
Imagine if Visa was using too much energy to protect its customers’ data and switched to a system that claimed to use less energy but provided a fraction of the security. Would you continue to trust Visa or take your business elsewhere? That’s what’s happening here. We all want a more sustainable and eco-friendly future, but it can’t be at the cost of necessary security.
Insufficient protection is not the only price Ethereum users will pay for improbable sustainability. Hefty “gas fees,” which have reached up to $194 per transaction, aren’t going away with The Merge. Ethereum’s own website says that The Merge will not result in lower gas fees or noticeably faster transactions because the transition is not an expansion of network capacity. Realistically, the probability of forks and reduced rewards means The Merge will likely lead to increased gas fees.
If the network has already reached its maximum capacity and still can’t scale, what problems do transitioning to proof-of-stake actually solve? None. That’s why The Merge requires an upgrade called layer 2, which will attempt to lower fees, increase security, and expand utility by, you guessed it, addressing scalability issues.
They know that scaling is the answer, yet they seek it in all the wrong places. To add salt to the wound, Ethereum cites the Buterin coined blockchain trilemma as an excuse for the network’s inability to provide the unmatched properties of PoW. This theory suggests that while a perfect blockchain is decentralized, secure, and scaled, no such blockchain exists because in order to have two of these three properties, you have to sacrifice one.
This theory falls apart at the seams by simply understanding the intended use case for proof-of-work. With PoW all three properties are achieved because they exist simultaneously, and the more transactions there are on the network, the more decentralized and secure it becomes.
While most blockchain experts understand and respect the security of proof-of-work, they have discounted the scalability potential. As a result, Ethereum is turning to The Merge to solve key issues that the proof-of-work protocol was designed to eliminate in the first place.
What is the point if all Ethereum is doing by merging to Beacon Chain is mimicking existing financial systems with less security, scalability, and affordability? Who benefits?
Proof-of-work is not only the best existing architecture for currency exchange. It’s a groundbreaking system for secure data exchange with limitless utility potential. If those who understand the inherent capabilities of PoW cannot come together to see the value of allowing the tech to scale, more and more networks will follow Ethereum’s lead—sacrificing innovation and experimenting with people’s hard-earned capital and personal data just to feign sustainability.
Watch: The BSV Global Blockchain Convention panel, Blockchain mining & energy innovation
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.