Comparing POS to POW

This post originated as a Twitter thread from @behindtext. If you enjoy this read, show your support to the author by sharing, liking and commenting on their thread.

POW and POS have been regular topics of discussion in the @decredproject as the result of a proposal to change the subsidy split between POW and POS and its imminent activation on-chain. Instead of slavishly celebrating POW, let’s take a moment to compare it to POS.

POW incentive alignment is weaker than POS. With pure POW, miners can dump every coin they mine, and it does nothing to diminish their sovereignty in the consensus system. With pure POS, a miner that dumps all their stake rewards sees their sovereignty diminish.

POW acts as an internal strong entropy source, whereas POS must rely on entropy coming from external sources. without enough entropy, a consensus algorithm can be rigged and exploited by malicious actors to create the illusion of fairness.

Both POW and POS require sacrifice by participants. POW miners pay for hardware, electricity, and facility costs. POS stakers pay for coins, near term liquidity, and server uptime. POW is better for distributing to users via markets. The rolling costs of POW (electricity and facility costs) are substantially more expensive than POS, which creates incentive to sell coins. This is good if there is a lot of demand for the coins, but it creates painful bear markets and steady downward pressure in the absence of a bull market. Anyone who has weathered prior Bitcoin bear markets can attest to this.

A hidden risk we found with Decred’s POW is that a malicious mining cartel can, instead of selling at market prices, accumulate a vast inventory of coins, which can then be wielded as a weapon against positive price action. While this risk has been exposed specifically with Decred, a similar strategy has likely been applied for every notable majority-pow coin. People who care about POW and its fairness should be aware of this hidden risk.

POW and POS both have notable strengths, but we have found that the typically-overlooked risk of a mining cartel suppressing markets with its inventory is a massive downside to POW. The revolution will not be suppressed #Decred.

On a similar topic

@KingSolomonMine posted, show your support to the author by sharing, liking and commenting on their thread.

With more than half of Decred already having been minted by the POW side, I think now is a good time to realign the block rewards. One could even argue that the block rewards contributed greatly to a greater decentralization than the original tacomtime reward design.

Over the last six years Decred has seamlessly integrated numerous improvements. From ticket price algo change to building a KYC/AML dex with no trading fees, to the recent block rewards change, some contentious and others not so much. The thing is that when it came time to vote they all either passed or failed and did so with no chain splits. Bitcoin was a breakthrough in many ways, but it’s not the last iteration. Hell, it wasn’t even the first… Let’s continue to keep that original cypherpunk vision alive at Decred before it’s too late…