On September 15, 2022, Ethereum officially switched from the original PoW mechanism (pre-mined by the foundation) to PoS. There were many voices in the field of encryption. Some voices even said that this is “the history of mankind’s greatest financial innovation moving towards the right path.” Sexual Step”, which seems to mark the end of PoW’s historical mission.
For a long time, some people have simplified the comparison between PoW and PoS to the difference of pure blockchain “consensus mechanism”, and only limited the discussion on technical issues such as the security of the ledger, thus misleading everyone to think that PoW is unnecessary and can be avoided. go to waste of energy. This is obviously to avoid the important and deliberately confuse the public. In fact, the consensus mechanism of the chain and the double-spending security of the ledger are only one aspect of the problem, not the whole thing at all, nor the most important part.
Stupid, it’s the currency that counts
The goals of Ethereum have changed several times due to market changes. From the world computer, the dApp that never stops, to the token issuer, the world financial settlement layer, the story of Ethereum has been changing, and recently it has become “ultra-sound currency”. It is worth noting that the initial design of Ethereum explicitly excluded ETH as a currency: it is only used as “Gas” (gas) to drive the energy of Ethereum, the world’s big machine. But now that has changed, both the Ethereum.org website and the project’s documentation have been changed.
In the author’s opinion, the initial vision of the world computer (programmable blockchain platform) is the most suitable story for Ethereum. This is an achievable goal, and it also creates its due value. Change and change. The problem is just that, compared to Bitcoin’s “world currency”, the “world computer” can satisfy a much smaller market, because essentially there are not so many businesses that need to bear huge decentralization costs, and the currency machine is derived The financial needs of people are the ones that need decentralization the most and can afford the cost of decentralization the most, so the story slowly turns to “ETH is Money (ETH is currency)”.
From EIP-1559 to the PoS Merge, ETH has the opportunity to shrink in circulation, turning it into a new species that Ethereum fanatics call a trendy new species: ultra-sound currency. This is all speculation, since supply is just one of dozens of indicators (the monetary theory) that assess the soundness of money. However, Ethereum’s other problems (pre-mining ICO, continuous changes in vision, complex underlying protocols, secondary project syndrome, unstable monetary policy, centralized management, government sanctions risks, etc.) are destined to be unable to undertake the function of future currency , the most serious flaw is the PoS mechanism.
This article will discuss in eight aspects why PoW is the basis of future currency, while PoS is not.
1) Collectibles Monetary Theory
Humanity’s hobby for collectibles has been with civilization throughout history, even in prehistoric times when we were still apes. Animal teeth, shells, flint, jade, bronze, silver, gold, antiques, clothing, works of art, etc. have become valuable objects in different civilizations and different eras, and are collected by everyone.
Collectibles are actually a kind of currency with low circulation speed in primitive society or special period, and only participate in a few high-value transactions; correspondingly, the circulation speed of metal currency is higher, which can assist a large number of low-value transactions.
From Nick Szabo’s article “The Origin of Money”, the father of smart contracts, we know that for a particular item to be selected as a valuable collectible, it must have the following properties:
- Safer and less prone to accidental loss and theft. For most of history, this property has meant that it can be carried around and easily hidden;
- Its value property is more difficult to forge. An important subset of this attribute is those extremely luxurious, almost unforgeable products that would be considered extremely valuable;
- It is easier to estimate its actual value by simple observation or measurement. That is, simple observations can lead to more reliable conclusions and less effort.
It seems very wasteful to make an item just because it is a luxury. However, these unforgeable luxury items can continually increase in value through the transfer of valuable wealth through the medium. Every time it makes a transaction go from impossible, or extremely expensive to affordable, a portion of the cost is recovered. Its manufacturing costs start out as a complete waste, but are amortized over time with transactions. The monetary value of precious metals is based on this principle. The same goes for collectibles, the rarer and less easy to make, the more valuable it is. That said, the value created by the ongoing circulation and changing hands of these collectibles is much higher than the “first-time manufacturing cost” of these collectibles. The same is true for products of human labor, such as works of art, that can be shown to contain highly skilled and unique ones.
Further, collectibles are much more than just a pretty ornament. It must possess several major functional properties, such as being portable, easy to hide, and condensing unforgeable luxury. Moreover, this luxury property is something that the recipient can verify (the verification technique must be simple enough) – they will use the same technique that many collectors still use today.
This human desire to collect can be called “collection instinct”. The search for rare materials (such as shells and teeth) and the creation of collectibles took up a considerable amount of time in ancient humans, just as many modern people have made these activities a habit and invested a lot of energy. This search and pounding activity turned out for our ancestors to give the first reliable representation of a value quite different from practicality, and the precursor to our money today.
PoW is expensive, but this expensiveness is not a waste. From the point of view of things that must be labor-intensive and time-consuming to make to be considered collectibles, unforgeable, easily identifiable workloads are a must for an item to serve as a medium of exchange—that is, currency.
2) Commodity Monetary Theory
In the modern world, “producing money” and “producing goods” are fundamentally different things.
But we go back to the time when precious metals such as gold, silver or copper were used as currency, and even in the ancient times when salt, sheep, and shells were used as exchange media. At that time, money was not special, but a common kind of value in itself. Commodities, in which case “producing money” and “producing goods” are the same thing: both cost a certain amount, and fierce competition in an open access market where anyone can participate in production can change the price of “money” or “the price of money”. Profits in the production of money” are always limited to a level indistinguishable from the production of other commodities.
The situation changed after entering the industrial revolution. The increasingly large and rapid economic development began to slowly make physical commodity currencies such as precious metals unable to meet people’s daily payment and long-distance frequent trade needs due to their physical properties. Credit currency that avoids the problems of bulky, inconvenient, uneven texture and high circulation cost of physical currency in the form of accounting or debt such as gold coupons, precious metal warehouse receipts, checks, etc. has appeared.
Credit money solves the shortcomings of commodity money, but it still has its own shortcomings: the shrewd banker or banker finds that people do not exchange all the gold back at the same time, and if they secretly over-issue more gold There are many exchange notes, people will not find out, and the shameless bankers call these over-issued credit currency “a gift to myself”.
From then on, “production money” (that is, the production of paper) has become a matter of no capital and profit, and there is even no need to print paper at all. You only need to move your finger to modify an entry in the database software, and you can quietly The creation of vast wealth out of nothing. The competition for commercial expansion of banks has made this kind of credit over-issuance increasingly bold, and the entire credit system has become increasingly fragile. Eventually, some minor events cause a “run” that will lead to the credit collapse of the entire banking system. The financial crisis in the modern sense has been repeated since then. appeared and grew out of control.
Due to the inherent instability of credit currency, the power to issue credit currency was later nationalized, and the exchange relationship with any physical commodity was completely disconnected. In this case, people for decades seem to have fully accepted that money can only be credit and not what it is: a commodity.
PoW allows the world of information to produce “encrypted commodities” that are as valuable as physical goods. The whole currency returns to the era of commodity currency. Credit currency is to solve the defects of commodity currency. In the era of encrypted commodity currency, the defects of physical currency (cumbersome and inconvenient, difficult to divide and combine, high identification cost, easy to wear, different color, etc.) no longer exist, so we no longer need The unnecessary form of credit currency or legal paper money.
It can be seen from the recent regulatory actions and information disclosed by the US government that PoS is more likely to be defined as a security. Because the blockchain of the PoS mechanism must be activated for the first time, the first distribution of tokens is required, so the individuals and institutions that obtain PoS for the first time are the issuers of this security. PoW, on the other hand, does not have this “first issuance” problem, and its energy-intensive and open-competitive production method is essentially the same as the production of any other commodity.
3) Energy Monetary Theory
The history of human scientific and technological civilization is the development history of energy utilization efficiency.
In 1921, American industrialist Henry Ford proposed an “energy currency” as the basis for a new monetary system. The currency bears striking resemblance to the peer-to-peer electronic money system outlined in Satoshi Nakamoto’s 2008 Bitcoin white paper. That year, the New York Tribune published an article outlining Ford’s vision of replacing gold with an energy currency that he believed could break the bank elite’s grip on global wealth and end wars. He intends to do this by building “the largest power plant in the world” and establishing a new monetary system based on “units of electricity”.
Ford told reporters: “Under the energy currency system, the standard is the amount of energy produced per unit of time, which is equivalent to a dollar. It’s just an example of thinking and counting, with a different terminology than what we’re used to with international banking groups that have set us up, So we don’t think any other criteria are desirable.” He added: “The specifics about the value of the currency will be worked out when the government is willing to hear about the value of the currency.”
Under Ford’s energy currency theory, there is no difference between “available energy itself” and “proof that energy has been consumed” for currency. The former is oil and coal, while the latter is a PoW mechanism like Bitcoin. produced electronic money.
From the most primitive wood, to coal, to oil, then to hydropower, wind power, solar power, and finally to nuclear fission and fusion, the efficiency of human energy utilization has been improving, and energy acquisition methods and energy utilization efficiency represent The productivity and technological level of this civilization. Taking human transportation as an example, from human transportation, to animal-pulled carts, to coal-burning steam locomotives, then to internal combustion engines, and finally to electric motors, the energy use of everything is becoming more direct, reducing unnecessary intermediates. process. Money is no exception: the best money will be one that is produced directly by consuming energy without all other intermediate processes.
A common mistake here is that PoS is a more “green and economical” way to produce money, but the opposite is true, PoW is the most efficient. PoS just confuses costs, but it is impossible to eliminate them.
The cost of electricity is only a part, not the whole, but the energy consumption directly consumed by the miners is the most efficient way.
When people say “Bitcoin wastes energy,” they mean that electricity is needed to power the mining equipment that produces Bitcoin blocks; ironically, on the one hand, this energy is clearly not all the energy used by the Bitcoin network to operate , but only part of it; on the other hand, this part is the part most directly used to secure the blockchain, so it is the least wasteful. To fully measure Bitcoin’s carbon footprint, we also need to consider hardware costs (the cost of manufacturing and scrapping) and the cost of normal business operations (fitting out a decent office and flying around to Bitcoin conferences). The latter two categories of costs are more ambiguous and harder to estimate. But they are just as important to understand the impact of the system as a whole.
The more a cryptocurrency spends its security budget directly on electricity, the more secure it is; the more money it spends on commercial operations, the less secure it is. Proof-of-stake does not (and cannot) eliminate miner expenses, it just converts the portion of PoW systems that the PoW system spends on electricity into capital expenses. How the externality of locked-in capital compares to the externality of electricity consumption is a complex and nuanced issue – but what’s worse is that proponents of PoS systems tend to pretend that electricity is the only price to pay.
Obviously, PoW is the most efficient and direct way to use energy, and the PoS mechanism is full of invisible and difficult to assess social activity costs. Ultimately, all forms of PoS become an indirect, inefficient, and lame imitation of the way PoW is produced.
4) Clear cost theory
A successful currency needs to have the widest circulation in the world. Different regions, environments, technological levels, cultural customs, social systems, etc. all need to reach a general consensus on the value of this currency. The free competition of currencies will allow everyone to choose the currency that can most easily and directly assess its value as the medium of exchange, because then both parties to the transaction are willing to accept it. The most direct manifestation of this value is the cost of production, and preferably the direct cost of energy prices. Because only energy is a cost expenditure method that can be objectively observed and directly understood by all people of different backgrounds in the world.
A sound currency that can be used globally on a large scale must require a production cost that can be most objectively, clearly, and simply and directly observed as a value support. Otherwise, how can the “hardness” of hard currency be reflected? Otherwise, how to evaluate the “power” degree of purchasing power?
The electricity cost of PoS is only a very small part, and some people take this low energy consumption and high currency premium ($0.1 production cost but $100 face value) as the advantages of green saving, so what reason do we have to convince outside the market of people accept that the $99.9 “currency premium” is objective, just, and must be accepted?
No-cost paper or credit money has value for two reasons:
- First, valuable physical commodities are inconvenient to carry, trade and pay. Some organizations use banknotes as exchange certificates for commodities through goodwill, such as bank notes, spot warehouse receipts, and checks.
- The second is that if the banknotes are not tied to any physical commodity, then someone must be forcing you to agree that the banknotes have value. Once no one pushes, the value of these notes will go to zero.
No-cost, unpegged banknotes cannot survive in a free-choice market that does not involve violent coercion. In the judgment of objective value, you can temporarily deceive some people locally, but you cannot deceive everyone forever.
The kind of thing that everyone uses a certain piece of waste paper as valuable currency through “agreement” has never happened in history, and it will not happen in the future. In conclusion, money is a commodity, not an agreement. If it is a commodity, it will definitely be subject to market competition and cost curve competition. The market will not accept a commodity that can be manufactured in large quantities at any time at almost no cost, but whose “face value” is much higher than the actual cost, and maintains the price difference for a long time.
In a free market, a precondition for a good that can perform a large-scale monetary function is that the production cost (that is, the value) of the good can be effectively observed in a simple and generally feasible way, at least more objectively than other goods. , A clear and unambiguous cost calculation method, the illusory “value” that is subjective, short-term, artistic, unclear, constantly changing, and lacks a unified calculation method, or the “market consensus value” that depends entirely on mood, cannot be value as a currency. Moreover, the production of this currency should be completely open, so that all human beings can have the opportunity to participate, and the cost of production can be assessed in a decentralized and objective manner, so that a consensus on the value of this currency can be formed for all human beings. The cost of PoW is the most directly and effectively observed production method. There is no production method that can directly and directly observe the cost in a simple and effective way than directly consuming energy (electricity) on the earth. There is no one, so pow is The basis of future currencies. Humans will not choose an item whose production cost is unknown and unclear, as a hard currency with the largest circulation in the economic world and acceptable to everyone.
Therefore, PoS cannot be used as a production method of currency, because the observable cost of the new currency issued by PoS is basically zero, which means that the new people who get the currency are diluting and cannibalizing the wealth of others at no cost, and everyone is not stupid. Under other conditions being the same, people will definitely choose Tokens (such as PoW coins) with objective production costs that match their prices as currencies.
On the other hand, buying PoS coins as a pledge is actually free of cost, because there is no capital loss in the pledge investment (the risk of token value fluctuations has been offset by its value-added profits), which is equivalent to buying machines and consuming electricity to mine gold, and The difference between buying gold and creating new gold at home automatically. In addition, after a lot of attempts, the reality that no unsecured pure algorithm stablecoin can remain successful also shows a principle that tokens issued at no cost cannot maintain their currency premium for a long time in the free market.
PoW is the best way to produce this objective cost, bar none.
5) Qualitative cost theory
Before diving into the theory, let’s think about why there is money? Why haven’t rare items like diamonds become money? Will oil be a good currency?
In the transaction behavior, both parties to the transaction are unavoidable to judge the cost of the goods or services provided by the counterparty, and the transaction fees paid in the process of judging the quality of the goods are called “quality judgment fees”.
The size and frequency of transactions are of course bound by transaction costs as a whole (“information costs”, “contracting costs”, “qualification costs”), but the problem changes as long as we focus on the following scenarios: To be more clear:
Why would it be better to have some kind of commodity acceptable to both parties when people have already decided to trade with each other? What are the conditions for this commodity (or why does one commodity meet this condition better than others)?
You’ll soon realize that this has basically nothing to do with “contracting costs”, adopting a commodity (“currency”) that each other likes does not change contracting costs; nor is it so closely related to “information costs” because With the formation of a large-scale market, money as a commodity may not have much different information costs (the cost of finding market prices) than other commodities.
Therefore, the key lies in the “judgment fee”. That is, if both parties trade things in exchange, both parties have to pay a lot of costs to determine the quality of what the opponent gives, and sometimes this quality inspection is expendable (such as inspecting the quality of oil), but there may be a commodity whose The change in quality is very small, and it is easy to check the quality, so everyone can easily trade this kind of thing, at least one of the parties does not have to pay so much for quality judgment. And because different commodities have different quality-judgment costs, the advantages of being suitable for use as currency are also different.
There have been countless currencies in human history: gold, silver, stones, even cigarettes, eggs; but all of these currencies have clear characteristics in the corresponding society: under certain technological conditions, their cost of quality is the lowest, Gold and silver only have one dimension of purity, and the inspection cost is very low, and they can be melted; cigarettes produced in the United States are standardized products, so they were used as currency by private people in Germany for a certain period of time after the war.
Therefore, judging the strength of currency quality is actually tantamount to determining the quality of the material. The lower the cost of judging, the more suitable it is to use as a currency. This is the insight of Alchin, a master of property economics.
For currency, the point is not quality (90% of gold and 95% of gold differ only in market price), but rather the cost of quality (gold is less expensive than diamond). Therefore, it is not the level of security that determines which distributed ledgers are suitable for carrying currency, but the cost of determining the security of ledgers determines their currency quality.
In PoW, the task of determining the security of the ledger is extremely simple, just verify the block hash and check the difficulty requirements of the entire network; although the difficulty requirements cannot directly reflect how difficult it is to rewrite the ledger, it directly shows how many times it takes Hash calculation.
And in PoS, at least as far as I know, there is no such simple way to check the security of the ledger:
- In a non-pledged PoS system, the verification of the legitimacy of the block generation depends on the status data, because only the status data can tell you how much money is in which address at any moment, and whether a block can be generated, but each block will be more Part of the state data; in the worst case, this difficulty can make PoS completely useless against witches (an attacker can attack a node with a high previous fork chain without paying any cost);
- In the pledged PoS system, the block generation process is completed by the verifier through “initiating-pre-voting-voting (signature)”, and there must be a step in verifying the security of the ledger to verify the verifier’s signature. Moreover, regardless of whether the signature is aggregated or not, the amount of computation required for verification is difficult to reduce.
That is to say, PoS is much less efficient and more complicated than PoW, whether it is to judge the production cost of the currency or the security of the ledger.
Money is money because it needs to change hands countless times as a medium of exchange. The quality of the cost of judging will continue to be enlarged with the long-term accumulation in the process of transaction circulation, which will eventually lead to the cost of circulation being much higher than the cost of production.
We can conclude that PoW directly consumes energy in the first production process. In fact, it greatly saves the qualitative cost that will be repeatedly spent in the subsequent circulation process, so that the currency produced by PoW is actually more energy-efficient. chosen by everyone.
6) Open System Theory
The PoS consensus mechanism ensures security by slashing the tokens of the perpetrator. So, on a technical level, how exactly does the confiscation mechanism work? Do we have to build a list of all the witnesses before we can confiscate something? Yep, that’s it. To act as a witness in Ethereum’s PoS consensus mechanism, you first move ETH to a special “staking” address. This is not only for applying the slashing mechanism, but also for voting, since checkpoint blocks require a 2/3 majority.
Maintaining such a list of all witnesses 24/7 has some interesting implications. Is it difficult to join a team of Witnesses? Can I leave anytime? Can witnesses vote on the status of other witnesses? This brings us to the rationale behind PoS: PoS is an admission system.
The first step to becoming a witness is to deposit some ETH into a special staking address. How much ETH do you need? Minimum 32 ETH, about $50,000 at current prices. To add context, decent bitcoin mining rigs are generally a few thousand dollars apiece, and if you’re home mining, you can start with an S9 for a few hundred dollars apiece. To be fair, there is a technical justification for the high threshold of ETH PoS consensus, a higher threshold means fewer witnesses participating, which can reduce bandwidth requirements.
So, the entry barrier is very high, but, as long as anyone has 32 ETH, can they participate as long as they want? Not really. There is a security risk if a large number of witnesses leave or enter at the same time. For example, if the vast majority of witnesses in the network leave at the same time, they can re-spend funds on a fork (that they did not exit) without penalty on either side. To mitigate this risk, both entering and leaving PoS consensus have built-in queuing mechanisms (throuthput limit, literally translated as “throughput limit”). In addition, although the witness can now issue an “exit” transaction and stop participating in the PoS consensus, the code to actually withdraw the funds has not yet been completed.
The last point is the economic incentive to approve new witnesses to join. Suppose you are a shareholder of a large company with a stable business that pays you dividends every quarter. Would you be willing to issue additional shares for free? Of course not, because that would reduce the current dividend for all shareholders. A similar incentive structure also exists in PoS. Because every new witness joins will dilute the income of all current witnesses. In theory, witnesses can directly censor all transactions that add new witnesses, but I don’t think that in reality, such a blatant approach won’t work. This would be very obvious, and would destroy Ethereum’s “decentralized” image overnight (and possibly lead to a price crash). I think people will use smarter methods. For example, using “security” or “efficiency” as an excuse to slowly change the staking rules, the threshold for participating in PoS is getting higher and higher. Any policy that sacrifices new Witnesses in favor of existing Witnesses will be supported financially, whether it is exposed on the table or not. Now, we can see why PoS turned into an oligarchy.
The PoW mining method adopted by Bitcoin is not just a consensus protocol, but also raises the issuance cost by opening up market-based competition in currency production, so as to prevent anyone from being in a position to enjoy the success.
However, consensus protocols such as PoS and other “money begets money” are not essentially open access systems: the distribution of new currencies in the future depends on who has more currency now, and the distribution now depends on earlier This system is essentially a closed power distribution system rather than an open system.
At present, only PoW can realize this kind of open system: the subsequent production of new currency can be completely independent of the current distribution of currency. It can be seen from this that the energy consumed in the mining process is not wasted unreasonably or unnecessarily, on the contrary, it is a must-have guarantee that must exist – a law of thermodynamics to ensure that the entire system is always fair Physical hard constraints on sex and effectiveness.
The most important reason why the US dollar can become a global currency is that it can be freely used and circulated without barriers and access. We cannot imagine the success of a world currency controlled by the richest people.
7) Intergenerational Distribution Theory
Saifedean Ammous, author of the book “Bitcoin Standard”, believes: “In theory, the ideal money supply should be locked so that no one can produce more money. In such a society, the only legitimate way to make money is The way is to create something of value for others and then exchange it with them.”
This is wrong, a bluntly fabricated rationale for the existing flaws of Bitcoin’s cap. The PoS currency production mechanism faces the same flaws as fixed distribution: the new currency is issued proportionally to the holders of the old currency, just playing a number game without changing anything. For currencies, what matters is your share of the total, not the units shown in the account.
Imagine a more extreme situation: I issue a fixed cap of 1 million NiceCoins, put them all into the account that I control with the private key, and never issue more, and the supply is locked. I am also very willing to go all over the world to buy various kinds of coins generously. Products and services that promise to spend at least 100 NiceCoins a day, will everyone in the world happily accept NiceCoins as the perfect currency? If everyone is reluctant to recognize NiceCoin, what is the reason? I think everyone knows the answer: it’s not fair. I didn’t do anything, but I was able to sit back and enjoy the support of people around the world. Therefore, the supply of currency must not be locked, but must be moderately “sustainable production”, so that other people and future generations who join the currency distribution later can hedge and eliminate this kind of “sit-and-seek” exploitative style by participating in currency production. life”, through which some specialized people participate in the production of new money, while most of the others work in other industries, balancing out this exploitative effect by competing for profit margins.
Failing this, these latecomers will simply “start from scratch”, and if they are stopped by power, they will simply “turn over the table”.
Any monetary system with a fixed cap will face the fatal “first distribution paradox”. But this “sustainable production of money” is definitely not a reason to favor fiat currencies and the central bank system. Currency production requires market competition and cannot be managed by a certain institution. Otherwise, it will still result in one person’s “sit back and enjoy the profit”, and it is a much more serious “permanent profit” than the fixed upper limit. After all, the fixed upper limit The money that is spent is one less, but the central bank can continue to issue the same proportion of money indefinitely to lend to a certain group of people first.
Only a continuous PoW mining mechanism (such as Grin’s constant block reward method) can ensure the fairness of this intergenerational distribution. PoW and PoS mechanisms with a fixed total cap are essentially chaebol exploitation systems.
8) Expectation Stability Theory
The rapid collapse of the Luna/UST algorithmic stablecoin to zero, unfortunately, is not a reliable solution for the currency either.
A more important reason why PoW that consumes energy to produce currency, rather than PoS or “algorithmic stability”, is more suitable as currency: PoW has the historical total mining cost as a reference to the total value of the current token, which is a kind of Anyone’s “confidence” and any subjective thoughts are transferred “true value level”, having such a hard value reference will help the currency not “suddenly rise above the sky”, nor “suddenly go to zero tomorrow” , because the market will think that if the current token price is lower than the historical average mining cost, the currency price is “undervalued”, and some people in the market will buy it. Of course, this does not mean that the currency price completely follows the cost. Most of the time, the demand determines the cost, but it means that we have a unified, fixed, objective, and rigid value reference in PoW. This objective value reference is conducive to maintaining price stability.
For a cost-free distribution method like “algorithmic generation” or PoS output, since there is no hard value reference that everyone can objectively recognize, its price depends purely on the market game under “completely subjective evaluation” (also It is market confidence that determines everything), which will bring a problem: everyone does not know what price is “reasonable”, or any price is “reasonable”, which will bring more serious price fluctuations, It is not conducive to the realization of its monetary function. “Algorithmic stability” is an endogenously unstable system with no reference. Its mechanism is similar to a performance where the left foot steps on the right foot in mid-air, and whether the actor remains stable in the air or suddenly falls, there is no Relying on the “value rope”, it depends entirely on the audience’s “thinking”. Such a “confidence system” must eventually collapse due to some unexpected “price spiral” in the long run.
The PoS currency production mechanism lacks any “anchor” of objectively observable value, which will lead to very serious price fluctuation feedback, some unexpected events will lead to a temporary price drop, and the price drop will lead to a lack of confidence among some people, and the lower Confidence in turn leads to lower prices, bouncing back and forth between confidence and price in perpetuity.
The production cost of PoW will be more objectively expected to achieve the effect of stabilizing the holder’s confidence. Moreover, it would be better if the supply can be dynamically scaled according to market demand under the PoW mechanism.
Written on September 15, 2022 Ethereum PoS Merger Day, time will tell
—- Hacash lovers
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/8-theories-prove-pow-is-the-foundation-of-future-money/
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