Why Proof of Work is Superior to Proof of Stake

Proof of Work is a superior system to Proof of Stake

What we want from money is reciprocal equity, not absolute equality.

The Idea of Proof of Work

People who work to create more value should duly gain more monetary value as a consequence than those who create less value. Who determines what’s more valuable? We validate and duly reward each other’s proof of work. We do this every day throughout our lives. Free market. Centralised issuance and manipulation of money itself within hierarchical monetary systems interfere with this free market process.

The difference in Bitcoin is that few with the means cannot arbitrarily create money at no cost to themselves and steal from you the value you’ve acquired through your work and time. There’s no interference with the free market process of creation, distribution and exchange of monetary value. This is we believe that Proof of Work is a superior system to Proof of Stake.

The Problem With The Current Monetary System

What’s the root problem with fiat money Satoshi sought to fix? Trust, as a consequence of two things,

1- Centralized, focused issuance and control of money supply and monetary policy

2- Trivial cost of issuance

We cannot build a sustainable economy predicated on money created from nothing. While issuance entails no cost, the money remains at the mercy of the basest of human qualities, self-seeking greed. All corruptive tendencies of fiat money are a direct consequence of the trivial cost to issue infinite money. We’ve had 3800 fiat currencies. They’ve all eventually collapsed to nothing, from whence they came.

Why Proof of Work is Superior

Satoshi’s proof-of-work algorithm solved for these two flaws by implementing an ingenious cost of issuance algorithm that keeps every actor honest and perpetually scales in proportion with Bitcoin’s value as a monetary network—the higher Bitcoin’s value, the higher the cost of issuance, & vice versa.

Proof-of-work requires those who acquire the new supply of money to continually input real-world work and cover recurring operational costs, ensuring that those who receive the new supply of money cannot keep hoarding without significant cost to themselves. Miners are forced by the game theory embedded into the protocol to redistribute Bitcoin into the market.

Any system where the creation of money entails no work/cost would be fiat 2.0 all over again, a system where wealth equals power, where the rich forever get richer, more powerful and the poor get poorer.

Miners input work and recurring costs to find blocks and receive compensation for their work in securing the network, however, blocks are validated by full node users, not miners. Full nodes enforce the rules — accept/reject blocks found by miners — and hold the power to keep miners honest.

In proof-of-work, wealth does not equal power.

The lifeblood of civilisation, money, backed by the lifeblood and language of the universe — energy and mathematics. This is a pretty big idea, bigger than the present scope of humanity and it’s an idea with eternal merit beyond the bounds of our planet. In a hard-coded system such as Bitcoin, these universal elements ensure the protocol is not subject to human control/manipulation. Proof-of-work admits of no corruption or privileges.

Why Proof of Stake is Inferior

Proof-of-stake is a regressive hermetic system abstracted from any interface with the real world that walks back on Satoshi’s solution. Those who receive the new supply of coins are not required to undertake any work or suffer recurring costs to themselves (trivial cost of issuance).

This causes the new supply of coins to be inevitably hoarded by those who receive them (large stakers), thereby leading to a concentration of wealth similar to the existing fiat monetary system (focused injection of money), and since in proof-of-stake, wealth = power, large stakers/preminers effectively assume the role of central bankers, acquiring all the new money and perpetually amplifying their power over the network.

PoS Math Breakdown

Origin of PoS: Not for Bitcoin, but maybe for company shares to prevent unwarranted outside influence

But the supply of bitcoin is finite and limited to 21 million. Is this not a problem?

It’s finite but divisible.

1 Bitcoin = 100 million sats

21 million Bitcoin = 2.1 quadrillion sats = 2.1 quintillion millisats

For context, the total value of all the physical money and money deposited in savings and checking accounts across the world is $40 trillion. The total value of all money in the form of all investments and derivatives is $1.3 quadrillion.

Injecting new money into the economy, as central banks do, is just an artificial way of re-dividing the aggregate monetary value within the economy inequitably, in favour of those close to the money.