 Proof of Stake. Is Proof of Stake just an elaborate Rube Goldberg machine? Quoting from Samson Mao, Proof of Stake doesn't really work because it is essentially perpetual energy. Proof of Stake is secure because you know everyone has a stake in it, but they're ignoring external threats. What if you have a competing network? What if you have Justin's son with Tron who's trying to overtake Ethereum? He could just buy out some of the stake and attack the network, or a hacker. But it's more likely a competing network would be incentivized to destroy a Proof of Stake because if they destroy one network, another network goes up. This is a complex question. I don't actually agree with Samson in this particular analysis of Proof of Stake. For one thing, one of the challenges with the idea of what if someone buys enough stake is exactly the same challenge that you have with Proof of Work and markets in general? What if someone buys a big chunk of Bitcoin in order to crash the market by then dumping it on the market? After all, governments have billions of dollars. Couldn't they just buy up most of the Bitcoin and supply and dump it? What if someone buys all of the ASICs that are coming out of manufacturing plants or buys lots and lots of ASICs and then uses them to attack the network? What if someone buys all of the stake of a coin? The truth is that the action of going into a market and massively increasing demand in order to get a substantial proportion of the currency or the ASICs or the mining power, etc., has a side effect. That side effect, of course, is that you're driving up the price as you're doing it. That price action will be asymptotic, which means that effectively the more you buy, the higher you drive up the price and the more constrained the supply becomes, the more you fail to buy up significant amounts of the currency or the ASICs because the last percentage of supply, the price of the last percentage of supply, of course, approaches infinity as you approach that element of supply. No matter what, in any market like that, the amount of supply that is currently available to purchase is low compared to the amount of supply that has already been purchased in the market but is not available to buy. Ironically, in Bitcoin, we call that the stock-to-flow model. It's basically a fundamental principle for why Bitcoin theoretically has great price appreciation potential because the actual stock of available Bitcoin versus the flow of new Bitcoin that's available on the market to buy, that ratio is pretty high. That means that there's not enough Bitcoin available on the market vis-à-vis the stock of Bitcoin that is fixed and not available to buy. Same thing applies when you're talking about proof-of-stake systems. So, keep in mind, while you're buying up the percentage of stake, you're also increasing the value of the currency that other people already have and creating demand for it. There is a theoretical possibility that you could do this. However, that is no different than the possibility of doing something similar to crash the market with Bitcoin or doing something similar to crash the market by buying up all of the ASICs. I don't really see the analogy and I disagree with this. That doesn't mean that I know that proof-of-stake can work at scale and resist attacks as well as proof-of-work. I do believe that proof-of-work has a higher qualitative immunity element than proof-of-stake. Essentially, the immutability that is provided by proof-of-work is different and better than the immutability provided by proof-of-stake. In a proof-of-work system, it costs money to change the past because you have to expend the energy. Even if you have 100% of the mining, you still have to do the work to change the past. You still have to produce proof-of-work. You also still have to follow the rules of consensus or you end up forking the network because the economic activity of the network, which is concentrated in exchanges, merchants and users, their wallets and nodes that they're operating will not follow a different set of rules just because you change them with the mining power. Same thing applies with proof-of-stake. You can't just unilaterally change the rules, but there is less cost in changing the past. Can staking and DeFi or decentralized finance coexist? I recently came across several articles about how DeFi could hurt cryptocurrencies whose consensus model is built on proof-of-stake. And there's a link there to that medium article, which was a really interesting read. You can find that in the questions section. The author basically reasons that one can simply take over most of the stakes from a cryptocurrency by offering its users more attractive rewards somewhere else in a DeFi project. What do you think about this opinion? So to paraphrase a bit, when you have staking in a proof-of-stake system, you put up your staked coin. Let's say Ether, although Ether is currently a proof-of-work system, but is planning to go to proof-of-stake, you put up your Ether in the proof-of-stake system in order to ensure the security of the network. And that Ether then can earn a tiny bit of reward effectively through the block subsidy from the new Ether that's being generated in each new block. Now, that's not the only way to earn money on Ether. In fact, the whole field of decentralized finance has merged with a whole bunch of financial products that are built on smart contracts. Examples of those include DAI, the decentralized stablecoin by MakerDAO, but also a bunch of other projects like Compound and Dharma and others that allow you to do things like lending. And of course, when you're lending to others, you're using your Ether as collateral in order to do lending or to borrow a different token. And in that case, you earn interest through that lending activity. And so what happens if the interest that is being produced from lending is better than the return that is being produced by staking your coins in proof-of-stake? Well, a rational economic actor in that case would move their coins from the staking to some kind of lending platform in order to make a better return on their investment. And if you follow that train of thought further, you could arrive at a point where a lot of people move from staking their coins instead to lending or investing their coins in a variety of decentralized finance instruments. And that means that the pool of stakers is pretty small, which makes it easier for someone to take over the proof-of-stake algorithm. The equivalent of what would be a 51% attack in a proof-of-work system is a one-third staking attack in a proof-of-stake system. You have to have about two-thirds of the staking actors acting honestly. And there's two ways to beat that system. One is to put up more stake than everybody else, but the other is to simultaneously reduce the stake that everybody else is putting up. And one way to do that is to artificially drive up the interest rates or returns on decentralized finance products. At least that's the theory behind this and other articles that have been written on this topic. Now, this gets a bit more complicated because the actual return you get from staking depends on the monetary policy of the underlying cryptocurrency. So if you're operating in a network that is inflationary, then there is a continuous block subsidy which generates returns for those staking. But what if you had a neutral or deflationary monetary policy at which point you no longer have block subsidy generating lavish rewards, but instead the rewards were diminishing over time, then that drives even more pressure for people to make better returns in an open market by staking the coins in an decentralized finance project instead of putting them as a stake against the proof-of-stake system? All of this is very complicated. This is part of the dynamic nature of open markets and economics in this new realm. And honestly, nobody knows exactly how this is going to play out. And part of the reason we don't know is because people behave differently at scale and with real money at stake than they do on paper when simulated in a financial simulation, an agent-based simulation, as one mentioned in that article. So we're going to have to see. One interesting thing that I didn't see mentioned is the possibility of being able to have your ethers simultaneously collateralizing a loan and staked against proof-of-stake. I don't know if that's possible, but it might be possible to stake coins that are collateralized in a smart contract against the proof-of-stake algorithm, in which case some of this problem goes away. And again, no good answers here. This is one of those. We're going to have to see how it plays out. And certainly this interplay between how much money is locked in decentralized finance contracts versus how much is locked in proof-of-stake is going to be a very, very interesting development as proof-of-stake coins develop in the future. 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