On the struggle between PoW and PoS in cryptocurrency, I often state my views, but it seems I have never set them out fully on the blog. Yesterday, just as a netizen wrote in asking about this, I wrote a few paragraphs, and I’m posting them here as well.
Asked whether Ethereum might replace Bitcoin as the value-preserving currency of future society, my view is as follows:
Of course Ethereum can preserve value, but I oppose POS currencies as the standard value-preserving currency, and this is for political reasons.
POS provides a mechanism for risk-free interest-bearing accumulation, so value preservers can keep earning interest continuously. Even fiat currency does not go this far; even putting money in the bank carries the risk of the bank failing.
Among all the ETH in the world, some portion is interest-bearing and another portion is not; the former keeps increasing, while the latter does not increase and may even steadily wear down and diminish.
The holders of ETH also fall into two groups: one part are the rich, and the other part are the poor.
So it is quite obvious that a greater proportion of the ETH held by the rich is in an interest-bearing state, while a greater proportion of the ETH held by the poor is not.
The result is that the rich tend to get richer, and the poor tend to get poorer.
Of course you can say that some rich people are prodigal, some poor people become wealthy, and social classes can be mobile. But if we are considering only the intrinsic tendency of money itself, we must admit that POS, at the level of its underlying mechanism, serves to preserve the rich becoming richer.
When many people calculate the so-called inflation rate or deflation rate of POS, they only consider the overall situation and do not take into account the problem of inequality between rich and poor. In fact, if we assume that Ethereum’s overall inflation rate is x%, the interest-bearing rate of the value-preserving currency in the hands of the rich is y%, and the coin’s interest-bearing rate in the hands of the poor is z%, then no matter whether x is positive or negative, large or small, we can foresee that: y is greater than x, and x is greater than z.
In the traditional world, governments might still balance the gap between rich and poor by imposing higher rates of taxes such as property tax, financial transaction tax, real-estate tax, inheritance tax, and so on, while providing all kinds of welfare for the poor. Although in practice this is often useless, in theory one cannot rule out the possibility that it may be useful. But in the crypto world, this is impossible, because the crypto world has a default rule of play: rather than identifying identity through some centralized real-world institution, it determines “identity” through self-generated and fully controlled “private key—address” pairs.
“Identity” must be defined autonomously; this is the premise on which blockchain technology was founded. Otherwise, there would be no basis at all for arguing over PoW and PoS; we could just count heads directly. Wouldn’t it be more democratic to simply let the heads of more than 50% decide the ledger? Why bother arguing whether 50% hash power (proof of work) or 50% deposits (proof of stake) should determine the ledger? It is precisely the move of bypassing the authoritative recognition of real-world “heads” that marks the starting point of blockchain technology (and by the way, stuff like worldcoin, with one person after another lining up for iris scans while still imposing national-entry restrictions, is basically the exact opposite of the blockchain spirit).
In rejecting authoritative institutions’ recognition of identity, when a rich person stores wealth in N small wallets, the stake in each small wallet ought to be the same as that of any other similarly small wallet.
So the poor cannot possibly earn more interest than the rich, and the reason is simple: whatever the poor can do, the rich can do too; the reverse is not true. One large wallet can be split into ten thousand poor people’s wallets. Each wallet should enjoy the same stake, so the maximum interest one can obtain is identical; meanwhile the rich can keep liquid funds in one wallet, let the other 9,999 wallets earn full interest, and even compound interest upon interest. The poor, by contrast, may only have one wallet in total for all expenses, and it is hard to fully capture the interest.
Superficially, some extra tricks may allow the poor to earn more interest, but that can only be possible if the poor are more willing to take risks. If the risk is the same, then the rich still have the advantage, especially since the rich are also better able to withstand risk. That’s like the poor buying lottery tickets: on the whole, it is still robbing the poor to enrich the rich.
Then a super-rich tycoon, for example one who holds 10% of the total ETH, only needs to take out coins from that (y-x)% each year for spending, and he can eat interest forever and ever, while forever and ever maintaining his total amount of money at 10% of the world’s total.
This is impossible in a Bitcoin-standard world. Even if you now own 20% of the Bitcoin, it is useless; the moment you spend even one coin, you have one fewer, and your share of the total must shrink. There is no safe, automatic way to earn interest. It is even harder for a whale to earn interest than for an ordinary person.
Bitcoin encourages value preservation, but not interest-bearing accumulation; living off what you have until the mountain is empty is the right path. POS, however, guarantees at the level of its underlying mechanism the possibility of living off what you have without the mountain ever going empty; this is something even the fiat financial system does not dare to do. The fiat system at least guarantees that risk-free interest cannot outpace inflation.
Vitalik is seeking immortality. Of course I neither believe Ethereum can become the standard currency nor believe Vitalik can live forever. But if both of these things were realized at the same time, then Vitalik would truly be an eternal god.
I do not think this is a beautiful thing. From the beginning, cryptocurrency was meant to oppose fiat currency, and the evil of fiat money is nothing more than the problem of the rich remaining rich. Yet after the revolution, we discover that the force maintaining the gap between rich and poor is even stronger than fiat currency. We revolted for nothing.
Some people say that even the rich who live off interest face risks, for example if Ethereum as a whole falls. I must reiterate: my discussion is based on Ethereum becoming the world’s foremost “standard currency.” If Ethereum is not allowed to monopolize the field, then naturally such a situation may be avoided. So my conclusion is that Bitcoin and Ethereum are not necessarily an either-or relationship, just as fiat currency still coexists with gold. Bitcoin is the better value-preserving currency, while Ethereum is more suitable for speculation and securities. That may be one way of dividing labor. Of course, it is also not impossible that newer coins will still rise up.
Translated from the Chinese original with AI assistance. The original text is authoritative.
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