Hi there,
Earlier, Lyn Alden published a controversial take on Proof-of-Stake vs Proof-of-Work, which made headlines.
It gives a well-rounded overview of the Blockchain landscape and compares power distribution within PoW assets to commodities and power distribution of PoS assets to equities. I do recommend you to read it.
While this take is actually well researched and theoretically correct, it is ultimately drawing wrong conclusions and is packaged in a sensational way. Let’s unpack that.
Lyn talks about Proof-of-Stake as legacy tech, and being similar to corporations and banks. What she really means is that the power distribution dynamics in PoS are similar to Tradfi. This is true, but entirely missing the fact. Blockchains systems are global, permissionless transparent, open, and free. Everyone can participate in Proof-of-Stake systems. Whereas Proof-of-Work has tremendous economies of scale and capital requirements where only large-scale mining enterprises can stay competitive these days. This is also expected to worsen in the future.
Lyn also speaks to the strong network effects of Bitcoin, and I agree. There will never be any Proof-of-Work chain that can compete with Bitcoin, as mining power is fungible. There can only be one Proof-of-Work winner. And clearly, that will be Bitcoin. So how does that fit into the story of decentralization and free markets?
Personally, I believe in a multi-chain world with open competition. Competition of blockchains is incentivizing continuous innovation. Without the innovations by Proof-of-Stake based systems, Bitcoin would stagnate entirely.
By no means do I want to discredit Bitcoin’s innovations or intend to. I do believe in Bitcoin as a foundational layer of our economy. However, it can not successfully co-exist without Proof-of-Stake based systems, which will be another, likely much bigger foundational layer of our future world.
Proof-of-Stake is harder to do correctly. But that doesn’t make it less great. As opposed to Proof-of-Work, it has massive design space on a protocol level, to circumvent any potential centralization factors.
Both systems are rather symbiotic. And both systems will ultimately succeed. There is no better or worse. They are simply different systems. Keep that in mind when reading any takes on Proof-of-Stake vs Proof-of-Work.
With the upcoming merge of Ethereum this year, expect more FUD around Proof of Stake. As a deflationary asset with far less issuance compared to Bitcoin, Ethereum will be the first real competitor for the Store-of-Value narrative.
Let’s embrace the differences and competition between Proof-of-Work and Proof-of-Stake-based systems. They will both make our world a better place.
Ethereum’s growth and positive momentum are reflected in the continuous staking inflow to the Beacon chain. It has now led the Net Staking Inflow across all Proof-of-Stake assets for 3 weeks already. See the below chart for more staking flow data of the top assets. Noteworthy is the net staking inflow to Polygon and Solana, whereas Cardano accounted for net staking outflow in the past week.
All the best,
Mirko
