Ethereum is abandoning the PoW mechanism, why should Ergo stick to it?

Is n’t oW dying ?

Ergo is a blockchain based on the Proof of Work (PoW) consensus mechanism. The most common question investors ask about PoW is: “Why? Ethereum is abandoning PoW? Isn’t PoW dying?” Interestingly, the lead developer of the Ergo public chain Alex Churpenoy (Annotation: also the co-founder of Ergo) once It is a Proof of Stake (PoS) developer.

If we go back to 2015 and go to San Francisco, we will find that Alex used to be a PoS cryptocurrency developer, and almost everyone in the cryptocurrency industry opposed PoS at that time. Fast forward to 2021, the market sentiment has turned to support PoS, and Alex Churpenoy is now full of enthusiasm for the future of PoW. Maybe he is just a retrograde, maybe he has his own goals.

If you know an industry veteran, but his/her views are different from the general consensus, then you will always find some interesting perspectives from his/her views.

Why Ergo also want to stick to PoW it?

Even if it does not include any other functions, Proof of Work (PoW) itself is a powerful machine that can develop the economy behind it. Ergo’s mission is to optimize PoW while advancing a new and extended UTXO (Unspent Transaction Output) model. Its goal is to break the boundaries of PoW’s existing capabilities.

PoW can be evolved and upgraded. However, since the focus of most PoW projects has been on creating network effects and developing on-chain economy, rather than developing the potential of PoW itself, PoW is developing slowly in the direction of evolution and upgrading.

The technology behind PoW has not been fully and optimally utilized. On the contrary, the PoW blockchain in the past focused its attention on improving the Tokenomic, on-chain use cases, and the market value of PoW.

PoW is not optimally utilized, leading to the lag in the evolution and upgrading of PoW itself, and the underlying development of its technology is also lagging. When a company or industry only focuses on market adoption and forgets the innovation itself, it will create a situation where innovators will benefit from this lag in evolution. This is the case with PoW. (Annotation: In other words, when the current PoW is profitable enough, developers have no incentive to make technical improvements to it)

PoS is not necessarily a “better” method of providing scalability. At present, the development momentum of PoS is more vigorous and is in a leading position. However, there are known structures (Bitcoin-NG, Flux, NC-Max) that meet network bandwidth limitations, and PoS is not stronger than PoW in terms of overall consensus overhead. PoW is under-developed, and Ergo is trying to change this situation.

The underlying tokens of the two are also different in meaning. In PoW, the underlying tokens are like commodities (digital gold); in PoS, the underlying tokens are more like shares of a decentralized company (also paying dividends through Staking).

PoW is not only about mining. The PoW protocol has been extensively studied and has a high degree of security assurance. They are very friendly to light clients with full node security. In addition, extended UTXO is also more friendly to off-chain and privacy protocols.

Ergo believes that decentralization of services through light nodes will be the key to success, and it is difficult to find light nodes with the same security attributes in PoS design. This means that mobile light nodes such as mobile phones have the security of a full PoW node. When the time is right, hardware such as wearable devices can carry light clients with the same security as all nodes. Friends, for anyone interested in best security practices, this is a game changer.

The security of Proof of Stake (PoS) has improved significantly, especially Ouroboros (Cardano) and Algorand have improved the Proof of Stake to a new level. The Ergo is actively committed to improving PoW’s underlying technology Annotation: Ergo consensus agreement is奥托吕科斯(Autolykos), like Bitcoin, it is well known that the consensus algorithm based on workload proof ( “PoW”) selected PoW. The main reason is that PoW has been studied more extensively. PoW has high security guarantees and is friendly to light clients. Autolykos is different from Bitcoin’s PoW, mainly because Autolykos uses high memory footprint calculations. Computing will narrow the gap between ASIC miners and ordinary hardware GPUs, hinder ASIC miners, so that ordinary people with GPU graphics cards can participate in mining, maintain network security and receive rewards. Ergo will always adhere to the PoW consensus mechanism, which is undoubtedly Provides a new way out for these miners).

Ergo and Cardano share a similar extended UTXO model, and both chains will be built on the basis of their respective networks. They plan to cooperate and improve and extend the UTXO model.

Whether the two routes will go hand in hand oS

There is no intention to engage in psychological fear tactics (FUD). Only by recognizing weaknesses can progress be made. What are the potential shortcomings of PoS and PoW?

In PoS, the security model itself seems to be contradicted or weakened by the system’s token circulation rate. (Annotation: Token Velocity, that is, token circulation rate, token circulation rate, token turnover rate or token exchange rate, refers to the average number of transactions of virtual currency or tokens in a given period of time. High velocity means With high liquidity.)

If the tokens in use are not in place, staking them can ensure the security of the system.

The pledged and locked tokens are not beneficial to the overall token circulation rate in the system.

The two mechanisms of liquidity and security seem to contradict each other.

When tokens are not pledged but circulate in the entire dApp (decentralized application) ecosystem, this seems to weaken the system’s underlying security model.

Maybe there is some mechanism to mortgage the pledged tokens. However, this creates multiple synthetic bullishes on a single asset. To me, this seems to be a second dip. In the case of market instability, can the role of pledged and locked-up tokens in the equity pool be called a “margin call”? How does this affect security?

There seems to be another problem: DeFi (decentralized finance) yields in dApps may provide greater incentives than lock-up pledges. If only a small profit is made for the sake of network security, will the tokens still be locked and pledged? This seems to run counter to the logic of profit maximization.

The last issue of my long-term concern is the inflation rate of tokens in projects with unlimited token supply. If for security reasons, the revenue mechanism must compete with the dApp rate of return, will the inflation rate be the same?

What is the historical inflation rate in a healthy economy? Because the input data varies globally and governments regularly change their models, it is difficult to truly answer this question. However, high inflation rates are a sign of risk.

Yes, in the field of cryptocurrency, high inflation may mean that lock-up and pledge will bring greater returns. However, benefiting from inflation does not always mean maintaining purchasing power.

Since the start of the recent bull market (Annotation: Original published on March 31, 2021), millions of cryptocurrency enthusiasts have entered the market. However, high inflation rates under different market conditions may produce different results. When users sell staking rewards, the resulting high token issuance rate may eventually cause additional downward pressure on currency value.

In theory, these pose a potential challenge to most miners who are honest mining, and the PoW network provides this as a security mechanism.

There is a conflict between network security and the circulation rate of tokens, and this design does not seem to have any potential inherent advantages.

Another aspect that I worry about the underlying PoS consensus mechanism is the identity mechanism. If the author regards PoS as a decentralized company that combines identity and loan business, the natural competitor of the service is the banking industry. Although I prefer to use a decentralized system, I cannot ignore the regulatory powers of the global financial services industry. With the development of central bank digital currency, the government is the main competitor of PoS systems and services.

Whether the two routes will go hand in hand oW

PoW is not without its weaknesses. Its main weakness is that the mining oligopoly monopolizes a large part of the computing power of the entire network. This provides conditions for the small groups of miners to unite and cause safety problems. The solution is to use the PoW algorithm with high memory usage to counter ASIC miners. However, the reality is that technology is constantly evolving, so this will always be a question of one ruler’s height. With the renewal and iteration of ASIC miners, the high memory footprint algorithm must also be improved. (Annotation: ASIC mining machines are manufactured using application-specific integrated circuits, which have the characteristics of low cost and high computing power. Once flooded, small and medium-sized miners using traditional graphics cards or CPU mining machines will be unprofitable. High memory usage algorithms can continuously increase video memory/ The demand for memory has made ASIC mining machines that are limited by cost and unable to provide storage margins to be quickly eliminated, which in disguise increases the cost of ASIC mining machines, making it impossible to flood them.)

FPGA miners may also act as spoilers. The good news at the moment is that FPGA mining machines cannot be rolled out due to high costs. And as we all know, they are also easily damaged by overheating. FPGAs may break the current mining landscape, or market factors will make them mainstream, so that ordinary users can use them to compete with larger mines. (Annotation: FPGA is a field programmable gate array, an electronic device that can program a large number of digital circuit logic gates. Generally it is used as a semi-custom circuit of an ASIC system. In theory, as long as the cost is not limited, FPGA can be made A chip that implements any mining algorithm.)

Another problem that PoW brings is its power consumption intensity. The author lives in a cold area, and it can be proved that the necessary electronic equipment will reduce the energy consumption of basic heating when operating. On the other hand, PoW may consume too much power.

With the advancement of technology, PoW has become more efficient. The power consumption per unit of computing power has been decreasing, and it is likely to continue to decrease in the future. By finding the place with the lowest electricity price, the large-scale PoW infrastructure can make the most profit, because it can reduce the electricity cost of miners. Large-scale mines are most likely to be set up in areas with excess power generation, making electricity prices more acceptable.

The first principle of conservatism is to maximize production efficiency. The energy efficiency of the whole world is very low, and a large part of the electricity, heat and food produced are wasted.

PoW has a history of 12 years. With the advancement of computer technology, the energy consumption per unit of computing power will continue to decrease. The energy efficiency of electricity production and transmission is also on a similar path of improvement. PoS is younger, its challenges to the network are coming, and its inherent technology will also be improved.

The author believes that the greatest value of PoW lies in security and privacy. These are the original foundational cores of cyberpunk.

The security and privacy of PoW will continue to be attacked by multiple arrows. Maintenance and development of these two elements are critical to the long-term adoption of PoW. Regulators will work hard to curb the development of technologies that hinder circumventing their control. This may include attempts to restrict users’ access to the network and the accessibility of tokens in certain markets. In order to keep pace with the times, privacy functions must be continuously developed, and at the same time, the decentralization of exchanges must be continuously promoted.

Look to the future

Both PoW and PoS, two distributed accounting technologies, are in their infancy.

I think we can use the analogy between the electric motor and the internal combustion engine. As of now, both systems are more than 100 years old; both have been redesigned many times. If you go back in time, I believe you will find the wise man at that time, who fully believe that only one of the two machines is the future direction.

The reality is that both PoW and PoS are evolving technologies. Both network designs are far from reaching their technical maximum potential. Are there advantages to both? Yes. Are there weaknesses in both? Right. The key is to iterate, improve, grow and evolve.

Although some people see the development of automobiles, they firmly believe that society will never abandon horses as a means of transportation. After all, motor vehicles do not reproduce and there is no natural repair mechanism. Horses can find “fuel” on their own. Some logic can lead to the conclusion: horses are better than cars.

Today, we see a similar attitude towards the benefits of converting transaction data into a secure electronic form. When transaction data is in traditional physical form, long-lived metal is used to store value and account mechanisms; as the world moves forward into the digital age, using metal storage becomes less attractive. We will witness all this in the future.

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