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The elephant in the room - BCH PoW fail?

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Written by   543
1 year ago

I used to think PoW was far superior to PoS, but I'm currently rethinking this belief, at least regarding minority chains such as Bitcoin Cash.

Marc De Mesel suggested in a recent video of his to consider forking BCH to PoS and this is what finally triggered me to think about this option more seriously. He may be right in saying "maybe it's a little bit too much", but I'm certainly in favor of considering the option seriously.

I need help in thinking this through and that's why I'm writing this article. It will be biased towards doing a fork towards Proof of Stake in BCH and that's not because I strongly support it at this point. It's because it hopefully helps me think through the option and maybe it inspires discussion more readily than some unbiased blablabla would.

The flawed assumptions about PoW

  • "good guardians": Miners are incentivized to take good care of the chain. This assumption is based on there being nothing else that could be done with mining hardware (or rather a mining operation in more general terms) that would be more valuable than mining Bitcoin. This was true in GPU/FPGA days and that assumption got even stronger when sha256 ASICS entered the market.

  • "no barrier to entry": everybody can mine, no permission necessary. There is nothing keeping anyone from installing a publicly available opensource mining node software onto some cumputer and connect it to the Bitcoin network in order to participate in mining Bitcoin. You don't need to register an account with any central company or institution. You don't need to be human, you don't need to be from earth, you just need computing hardware and a network connection. You simply don't need permission.

Note that it seems Satoshi was making both of these assumptions in the white paper and I used to make these assumptions, too. In fact over time they turned into beliefs I didn't question much any more. "I've thought it through and that's whats true. Period"

Why I think those assumptions are flawed

  • "good guardians": I don't believe this is true for minority chains. Miners can always switch their equipment to another chain, so there always is something equally valuable to use the operation for in case something bad happens to the coin in question.

  • "no barrier to entry": From the wording I used ("no barrier" instead of "permissionless participiation") it already becomes clear that this is not the case. Not everybody can mine. Everybody might have "permission", yes, but that doesn't mean it's feasable: successfully mining SHA256 in an economically sustainable way requires access to cheap enough electricity and access to efficient enough mining equipment. It also requires the operation to have a certain scale and thus require a certain amount of capital investment. If these conditions aren't met, you're not going to be competitive and soon enough you're not going to be a miner, because you're simply going to be priced out. Your operation will be too inefficient either due to too large operational overhead cost (scale too low), due to too large operational cost (electricity cost too high), or due to too large capital cost (mining hardware to inefficent in terms of hash per dollar).

Why I didn't notice the elephant entering the room

  • When the "no barrier to entry"-assumption crumbled (I noticed first-hand, because I had to quit mining in the "fall" of 2011. First by mining moving to places with cheap electricity and then by the introduction of ASICS, I brushed it off and told myself: "it's not so bad... these guys will be good guardians of the coin, we can trust them to that extent because they are incentivized in that way." So basically I fell back to the "good guardians" assumption.

  • When the "good guardians" assumption crumbled, I didn't notice. It was post-BCH split and I was all entangled in hoping BCH would flip BTC soon so I really didn't see it clearly since I believed ("hoped", rather) the minority chain situation would be temporary. I told myself: Jihan has a lot of BCH and he loves BCH and so do at least some of the other BCH miners. "Look: they're throwing hash at a huge cost to get the coin started, so obviously they're believers, holders and good guardians of BCH." Well, this might be true coincidentally, but it's not due to any built-in incentives for miners. Rather, it's because they happen to also be holders and they happen to also be believers. The emphasis here is on "happen to" and "coincidental". This means we cannot be sure this remains to be the case... it's not "built-in".

The thought experiement: IFP goes into effect, we fork off?

Let's assume the following happens (which I don't think is unlikely): IFP activates through BIP-9 voting and is actually supported by majority hash after activation. 5% of the block reward (probably has to be renamed at that point) flows to Bitcoin ABC (or other projects) for development.

Let's be frank: I want no piece of that coin (at least in the long run) and I'll probably detach emotionally from it (it's already starting). I'm sure I'm not alone. At that point I'll support a split. I don't want a split, but having the IFP pill forced down my throat is just not "an option" for me so I'll "vote" with what I have available to me: my feet.

But how could we possibly fork off? Certainly just making a non-IFP version of the node and getting some miners to use it is going to result in a minority-of-a-minority chain, because if majority of the hash had been against the IFP, it wouldn't have been activated and supported by majority hash. So really the only option is to switch the mining algo.

The case for PoS

Considering other PoW algorithms (or multi-PoW or whatever there is) is one thing, but why not go the full mile and consider PoS? The coin is distributed enough already so maybe a "transitional" approach (first PoW, then a mix and then transition to PoS) can be skipped in the case of BCH?

Proof of Stake, at least on naive inspection (which is what I'm doing here), brings the two assumptions back to the table:

  • "no barrier to entry": clearly the barrier is much lower than with PoW: no need for cheap electricity or hard-to-get specialized hardware: A simple VPS will do.

  • "good guardians": if implemented right, those that hold coins are the ones who can mint blocks and those that hold coins are naturally incentivized to be good guardians because they are holders and hurting the coin value will hurt them. To make this true, there would probably have to be a mechanism that ensures those minters don't turn around and sell their coins right away after minting. They may have to be "locked for staking" for a period of time. Also to avoid people just buying up a bunch of coins right before some important voting takes place it might be good to require a certain coin age for staking. But these are all points I'd like to discuss because frankly: I haven't thought this through.

The problems with PoS

well, see the comment section, I hope.

love you guys, molec

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Written by   543
1 year ago
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Comments

It's not about POW but public opinions and money, financial institutions are financing BTC on purpose, because they are affiliated with centralized payment services and don't want competition in payment networks with a purely decentralized peer to peer payment network.

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User's avatar Val
6 months ago

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1 year ago

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11 months ago

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1 year ago

BTC is not equally valuable. BTC is dead man walking. The long term plan is BCH. Jihan even said that explicitly. Proof is that miners are mining BCH at a loss quite often to protect it.

This is a built in incentive because their business depends on BCH in the long term. Not because they are coincidentally also holders.

PoS does have an unsolvable fair distribution, barrier to entry problem. You need to have the coins (or pay someone who has) to get the coins. Also PoS has fundamentally inferior security model - you cannot tell whether i gave you the correct pos blockchain, without being perfectly connected to the network. Also it has the rich get runaway richer problem.

Another argument against doing PoS fork now, as opposed to later, is the loss of network effect again. There is going to be a debate about switching Bitcoin to PoS later for sure. What is your minority PoS coin going to be worth if the main branch goes PoS as well?

Also you are waaay overreacting to the IFP. It is not so bad, maybe even inevitable in your PoS fork as well.

Also you dont realize we already have PoS in bitcoin today. Just vote with your coins - see http://www.bchwars.com/ for example. If enough coins are going to vote against IFP, miners are not going to do it! They work for the coin holders, exactly the same way as the executives in any other company work for the shareholders. They do not work for ppl whining on social media.

That said, if you really really need a pos coin, doing it as a BCH fork, instead of yet another ico scam, is certainly the right way to do it. There are a couple projects trying to create a new PoS coin right now, try to convince them to do it as a BCH fork maybe?

$ 1.00
1 year ago

BTC is not equally valuable. BTC is dead man walking.

I was talking about the profit in fiat-terms that can be made mining BTC, not its long term fundamental value.

Proof is that miners are mining BCH at a loss quite often to protect it.

As I explained in the article that may be coincidental because Jihan is a holder and believer. This doesn't invalidate the criticism of PoW in minority chains.

This is a built in incentive because their business depends on BCH in the long term.

Let me get this straight: you argue BCH miners assume that BTC will vanish at some point and BCH be the dominant coin and therefore they have incentive to protect BCH?

Another argument against doing PoS fork now, as opposed to later, is the loss of network effect again. There is going to be a debate about switching Bitcoin to PoS later for sure. What is your minority PoS coin going to be worth if the main branch goes PoS as well?

This is not about change to PoS for the sake of PoS. It's about being forced to fork from the IFP and seeing the opportunity to change to PoS while we're at it.

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1 year ago

Let me get this straight: you argue BCH miners assume that BTC will vanish at some point and BCH be the dominant coin and therefore they have incentive to protect BCH?

yes, they both said this explicitly (jihan) and is the only rational explanation for their behaviour. If the only reason forcing them to babysit BCH at a loss were BCH bags, then that is trivially solved by changing them to BTC, USD, CNY... If you were running FED, would you risk your business to speculate on the price of USD? Miners are businessmen, not speculators. Why risk the goose that lays the golden eggs.

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1 year ago

PoS does have an unsolvable fair distribution, barrier to entry problem. You need to have the coins (or pay someone who has) to get the coins. Also PoS has fundamentally inferior security model - you cannot tell whether i gave you the correct pos blockchain, without being perfectly connected to the network. Also it has the rich get runaway richer problem.

those are definitely good arguments against PoS.

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1 year ago

I'm going to paste a snippet from my last article, specifically the bit about the block reward:

When Bitcoin was created, there was a need to distribute new coins in an efficient and fair way. If Satoshi had given himself all 21M Bitcoins, you can be sure it would have never taken off. He could have given some to people who were interested in p2p electronic cash, but all this (and most conceivable alternatives) is incredibly inefficient. The block reward acts as a “double-whammy” because it distributes new Bitcoins fairly and efficiently following economic incentives, and rewards the miners’ investment in hardware, real-estate and electricity, thus ensuring the security of the network.

Essentially, PoW is great because its distribution is fair (among other things). The way that I see it is, PoS is a less insane "Satoshi gives himself all the coins".

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1 year ago

well, introducing PoS after most coins have been mined by pow lessens this problem, no? crazy idea: we could fork block reward to 0, capping supply to the currently circulating 18.3 million and use only the tx fees?

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1 year ago

sure, but then the income would be 10$ per day ..imagine what would happen to paypal or FED if that was the income they had suddenly.

Of course you can solve this problem the way all the startups with low income do - print more shares, and put lets say 95% of this budget to the HW guys running the network and 5% to pay some SW devs for improvements ..maybe you can allocate even a bit for marketing, sales, customer support.. you know, exactly same way as any other organization in existence would do .. oh wait, that wouldnt work because people still believe bitcoin is somehow magically different

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1 year ago

sure, but then the income would be 10$ per day ..imagine what would happen to paypal or FED if that was the income they had suddenly.

the incentive to run a PoS node is not (just) to have some income. It's to secure your investment.

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1 year ago

yes, but that is completely besides the point - that would also be true in the paypal scenario about running the paypal server - it does not change the fact that if the whole yearly income of paypal would be 3650 USD then it would collapse instantly

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1 year ago

[Removed comment]

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1 year ago

This was a good read even though I know very little about this.

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1 year ago

Please note that PoS has many unsolved problems and can't easily be used as a replacement for PoW. But I still think it's good to talk about the option, even if it's just to make miners think twice about their actions.

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1 year ago

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1 year ago

Reddcoin was switched from POW+POS, then to POS, and later to POSV in the recent years. So its not impossible.

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1 year ago

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1 year ago

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1 year ago

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7 months ago

Yah! Your point is quite impressive and proactive, "for IFP in place PoS is better than PoW". I had the foresight that IFP would fail and it is so.

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1 year ago

We are now more divided thanks to the upcoming fork. This is all ultimately affecting how we see BCH from there, and that will reflect into the market very soon. I can only 'hope' that not too many run away from BCH so we can keep the coin in good health (at least face to the world) and we don't end up killing it by more and more split, fork and whatsoever. As for PoS is a much desirable 'mining' than PoW when it comes to costs (of all kind, implementation, maintenance...); almost anyone can enter, and more importantly, remain.

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11 months ago
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8 months ago

I'm not sold on your counter arguments to the logical conclusions that Satoshi had.

"good guardians": I don't believe this is true for minority chains.

The incentive is not primarily about the mining hardware, although its a longer term one. The incentive is about the fact that the miner gets paid in coin that they have to actually sell at best a day after they mined a block.

If mimers start double spending or otherwise creating problems on the chain then we have seen clear and immediate response from the market with a significant drop. Hell, even the threat of a chain split lost 25% of the BCH chain in the last days.

The miners are most assuredly incentive to continue to be "good guardians" because they, by definition, own "stock" in the coin. Which they can't sell on very short term.

"no barrier to entry": Not everybody can mine. Everybody might have "permission", yes, but that doesn't mean it's feasable

And this is exactly how it should be. This proves the case, it doesn't crumble the case.

You seem to think that it should be available to all, regardless of economics or capability. No, not everyone is equal, not everyone has the capabilities or cheap electricity. This does not in any way limit the level playing field that we have.

It is a socialistic ideal that everyone should be embraced for wanting to be a teacher, or an astronaut. But that does not work in a free market. You are free to compete, but you are not given advantages if your electricity is more expensive.

The economics of Bitcoin were based on what you call "assumptions", I'd argue that they were not assumed but well thought through and still very valid today.

$ 1.00
1 year ago

Thanks for your reply, SharkySharkdog.

The incentive is not primarily about the mining hardware, although its a longer term one. The incentive is about the fact that the miner gets paid in coin that they have to actually sell at best a day after they mined a block.

There are a lot of possible changes to the protocol that might have a short-term positive or neutral impact, but still be pretty bad long-term. So you're saying miners are incentivized to protect the chain from short-term (1 day) effects, but not from long-term ones? Or maybe you're saying the market will anticipate the long-term negative effects and price them in within 120 blocks?

Hell, even the threat of a chain split lost 25% of the BCH chain in the last days.

In USD-terms? You know all cryptos dropped in the last days and it's hard to tell how much of the BCH drop is attributable to split fears.

regarding "barriers to entry"

You seem to think that it should be available to all, regardless of economics or capability.

I'm not sure yet, but I might actually think that, yes.

No, not everyone is equal, not everyone has the capabilities or cheap electricity.

that's my point. Why should access to cheap electricity make you have more say in the coin?

This does not in any way limit the level playing field that we have.

yes, there is a market for mining in PoW coins. I'm not saying I want to be able compete there or get some kind of subsidy to be able to compete. The idea is to remove that market comletely from the equation. It might make sense if the miners job is purely to secure the chain and order transactions, but it ceases to make sense when the miners actions go towards changing the protocol. Every holder suffers the consequences of protocol changes and should have a say in that. And I think maybe more directly than via social outcry and market action might make sense. Otherwise we might end up splitting ourselves to death.

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1 year ago

that's my point. Why should access to cheap electricity make you have more say in the coin?

this and another comment shows you have a core misunderstanding of the basis of power in Bitcoin (Cash).

Miners can indeed validate any ruleset they want, but it would be a misunderstanding to think that they have a say in the coin. What you should realize is that we can have a near infinite amount of coins because at every point you can just fork and change one rule. You can have hundreds of coins that are mined with a sha256 miner. The question you should ask is why we don't have those.

The answer is that because miners are not in control. They don't have the final say in the coin because they have bills to pay. The people that pay their bills are the ones in control. Much like the employees can be said to have a say in the product, but the one that pays them ultimately has veto power.

The ones paying the miners are the holders, the regular people. The merchants accepting the coin and running a full node (or paying someone to do so) to validate the miners are not cheating. The businesses that hold some crypto-money to pay their employees, the businesses that lend out money for an interest rate. Those holders create value of money. Make it money. And that value is what pays the miners.

The power over the coin lies, simply said, in the hands of the people that choose to buy it and not sell it. The miners are providing a product that the people buy. And if the miners change the rules to drop the intrinsic rules that people value, then the people sell.

The value of the coin is ultimately decided by the buyers, the intrinsic value of the coin is based on the properties of what it can do. The 21Million rule and others. Miners know this and that is why they mine it. Lazy miners just follow the market, for sure. But remember that the market is the people. Not the miners.

You have say in the coin based on your financial strength. You own more, you vote for the coin. This is how markets work and this is something that has worked for centuries. It may not seem fair to exclude the poor from a vote, but history shows that what is good for the many is good for the poor.

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1 year ago

I understand your argument about how "the market" keeps miners in check. However this works after the fact (unless some futures products are used for "market voting" before a change is made, but that carries other problems). So miners really have to predict market reaction and they can be wrong. My point is: if push comes to shove and they are wrong, it doesn't really hurt them (unless they are also holders, but as you said, they are not in the business of speculating, but in the business of mining)

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1 year ago

why not go the full mile and consider PoS?

Because, even if you disregard all the politics involved (there would probably be a fork of the fork), there is no time for this.

But yeah, if PoS is technically feasible (and I'm not sure of how feasible it is, I don't understand the implementation details), then the economic incentives do look much better. Besides of all you said, with PoS you get much more security by a tiny fraction of the price.

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1 year ago

Because, even if you disregard all the politics involved (there would probably be a fork of the fork), there is no time for this.

you're probably right. let alone implementing, we would need a lot of discussion about the details. however I can see myself supporting even a half-baked fork and work out details later.

that points to another issue with PoS, of course: it's very cheap to fork.

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1 year ago

I do agree that Proof of Work has proven to be a big fail. ESPECIALLY with the potential upcoming Bitcoin Cash split on May 15th — it shows that miners who don't even CARE about BCH (such as BTC miners) can start mining BCH on My 15th and CAUSE A SPLIT — even though they have no stake in the coin themselves. They are causing the split BECAUSE they want to damage the coin, which is EXACTLY THE OPPOSITE of what Satoshi intended with his invention! In the last 3 or 4 minutes of this video, Marc de Mesel really explains this exact situation in detail — that PoW is a fail and PoS is a win: https://www.youtube.com/watch?v=ch8gSbrIfh8

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1 year ago

that PoW is a fail and PoS is a win: https://www.youtube.com/watch?v=ch8gSbrIfh8

this is exactly the video I linked in the article. I even took the time to link to that last 3-4 minute part directly. ;-)

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1 year ago

They are causing the split BECAUSE they want to damage the coin

I'm not sure about that. Maybe you've read about how the Chinese BCH community is not against the IFP. Those miners probably really think the IFP is a good idea.

I can also see how the current situation is not good for them. Some of them are presumable paying ABC (I would really like some transparency on this, too, btw) and it makes them less competitive compared to miners that don't do that. That's not a good situation because these good-willed pro-BCH miners are less competitive and in the long run may disappear in the long run.

Because miner-financed development isn't sustainable per se, I think we need to fund development in some other way.

$ 0.10
1 year ago

It's probably too early to write off the miners; the past couple weeks have seen a great outpour of support from miners, and even the pools are gradually waking up - it is an information problem, and we're gonna solve it. Neither miners nor stakers can operate efficiently under a huge information asymmetry, and we're gonna fix that part.

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1 year ago

It's probably too early to write off the miners

let's hope so. The whole ifp discussion seems to really wake a lot of people up. myself included, tbh.

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1 year ago

I think that will be a great idea but once again thanks for your article sir

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1 year ago

while this might be a cool project, please don't spam unrelated threads

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1 year ago

I am new in crypto world! I like your article and got some new knowledge.Thank you for this.

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1 year ago

nice article sir

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1 year ago

I would love to learn more about the subject to get some votes, I write to earn some money, and buy food for my house.

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1 year ago

Though I dont have much idea about cryptocurrency. Your articles are really very informative. Thanks to you for this post

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1 year ago

this works after the fact (unless some futures products are used for "market voting" before a change is made, but that carries other problems). So miners really have to predict market reaction and they can be wrong. My point is: if push comes to shove and they are wrong, it doesn't really hurt them (unless they are also holders, but as you said, they are not in the business of speculating, but in the business of mining)

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1 year ago

This article is very nice, thank you for sharing.

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1 year ago

I subscribed you . Please subscribe me.

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1 year ago

Right,,everybode can mine, no permission necessary. There is nothing keeping anyone from installing a publicly available opensource mining node software onto some cumputer and connect it to the Bitcoin network in order to participate in mining Bitcoin.

https://read.cash/@IrfanSagor/the-highest-truth-is-humanity-and-above-that-is-nothing-1a91796b

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1 year ago

Keep sharing

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1 year ago