[TTPrograms]

I keep seeing the argument that Proof of Stake is more centralizing than Proof of Work, but it doesn't really add up with what I'm seeing in practice - Bitcoin mining centralized heavily around cheap electricity sources and companies that can afford SOTA dedicated mining ASICs. In contrast, anybody can become an ETH staker by purchasing the requisite amount of ETH (currently worth around $128,000, previously closer to $32,000) and make profitable return on it. You also retain a liquid asset that can be sold back at a later date. With the staking pools even this lockup amount can be reduced arbitrarily.

For a consumer to participate in PoW based on current miners it seems like they need to buy perpetually out-of-stock specialized ASICs for a sunk cost of $10-15k with the expectation that they'll break even in about a year and probably need to refresh in 3. The hardware management aspect as well as the variable cost of electricity seems to incentivize centralization of mining significantly.

Being able to standup a staking node with commodity hardware seems far more accessible.

[Kranar]

Yes Bitcoin mining centralizes along the ability to mine which involves things like electricity, technology, politics, social factors, maintenance, and a host of factors. The point is that all those factors are quite dynamic and can change from year to year.

Proof of stake entrenches a group of rent seekers in perpetuity, without the need to do anything external, or anything whatsoever. The risk of mining is quite high as we've seen the past few years and there is no singular entity that has dominated Bitcoin mining for more than 3-4 years. Furthermore even when Bitcoin was dominated by Bitmain and a few other miners predominantly in Asia, they were unable to use their mining power to influence Bitcoin.

So the argument comes down to Bitcoin depending on external factors that are quite risky and requires constant upkeep and innovation in order to maintain ones position in the ecosystem, versus proof of stake where absolutely nothing is needed to maintain one's position.

[rstuart4133]

> Proof of stake entrenches a group of rent seekers in perpetuity,

Ahhhh, that's a light bulb for me.

PoS is a step backwards in security, but perhaps not a meaningful one. Bitcoin has proved itself to a rock, or possibly a mountain range when only a rock is needed.

But yes, Bitcoin's mining fees are very carefully structured to be a near perfect market. Not so great for the miners - but perfect for the currency and it's users. Now you mention it, or Ethereum PoS looks like an excellent mechanism for the dominant Ethereum holders (which includes the founders - a point I'm sure hasn't escaped them), to entrench their position. I think we can safely predict things will take their natural course over time - and they will start charging what they think the market can bear.

[TTPrograms]

Staking is not any more rent seeking than mining is. Stakers calculate and propagate valid new states for the chain. I also don't see anything entrenching or perpetual about it.

It's not as though increased mining efficiency provides some net good for the Bitcoin blockchain, e.g. increased transaction throughput. It just provides a profitable edge for the miner. You'd just expect difficulty to increase, not energy usage to decrease. I don't think there's any particular reason to desire this sort of cross-miner competition that produces negligible societal gain.

[Gatsky]

Bitcoin tolerated the recent Chinese ban on mining without any apparent ill effects. That seems like a decent stress-test of the decentralised thesis.

But in any case, Ethereum is going to try PoS, so we'll see what happens.

[jkhdigital]

Decentralization is not about how big the players are, but how replaceable they are. PoW mining is identity-agnostic: anyone who owns the mining equipment and knows how to run it can participate. Players are maximally replaceable, a point which was demonstrated quite remarkably when China shut down Bitcoin miners this year.

[whiskyant]

Decentralization comes more from the nodes than from the miners.

[pa7x1]

I wholeheartedly agree, I wrote a more detailed analysis of the different sources of centralization and how both algorithms measure against them that I think is relevant so I will copy paste it here.

I see multiple factors that hamper decentralization:

- Fixed costs that act as barrier of entry

- Economies of scale that lead to centralization

- Geographic factors (operation costs being different in different parts of the world, regulation/taxation, supply chain...)

This is how I see each factor playing out in both scenarios:

- Fixed costs: PoS runs on consumer-grade hardware, while PoW requires specific HW (ASICs or high-grade GPUs). PoS requires a minimum amount of stake but there are decentralized pooling solutions (e.g., Rocketpool), which effectively make this minimum non existent. All in all PoS is at advantage here, unless you want to insist on solo staking in which case PoW is at advantage.

Analogy: This would be equivalent to flat fees to open a savings account or a minimum amount balance required to open it.

- Economies of scale: In PoS they are almost non-existent. You don't stake more efficiently by having a more powerful machine. You just get to reuse the same HW for more nodes but since fixed costs are low this has a very small impact. In PoW there are economies of scale, though, better/more expensive ASICs can mine more efficiently than smaller/cheaper ones. Same with GPUs. Someone with more initial capital can get ahead faster in PoW, while in PoS earns at a same rate as everyone else.

Analogy: This would be equivalent to the interest rate you get in your savings account being dependent on how much money you have. In PoW, the richer you are the higher interest rate you get from your bank, in PoS everyone gets the same.

- Geographic factors: Cheap access to energy has a large impact on PoW as it dictates most of your OpEx. In PoS this is largely irrelevant (PoS is 99.95% more energy efficient than PoW). Taxation/regulation would need its own analysis but I imagine is equally spread across both alternatives. Supply chain is again in favor of PoS as it can run on general-purpose HW, while ASICs are heavily centralized around a single manufacturer.

Analogy: This would be equivalent to different geographic locations resulting in different conditions for maintaining open your bank account or taxing your accrued interest.

[witweb]

I don't really get your point here as you don't have to buy ASICs every X years with PoW consensus. A friend of mine mines with his 3070 in a mining pool and makes a small plus with it. Hell, you can even mine with a 7 year old PC. Will you ever find a block? Probably not, but you're still securing the network and may get lucky. I don't see how this incentivizes centralization any more than PoS. With PoS, you have to be part of the network by spending money on a token while with PoW, you just need an existing PC with some compute power.

[jtsiskin]

In a PoW coin, if the cost of electricity < price of coin, more people will start mining, and vice versa. So let’s assume that over time, the price of a coin = cost of electricity to mine it + amortized/opportunity cost of the hardware (and assume that cows are spheres - https://en.m.wikipedia.org/wiki/Spherical_cow).

But electricity costs can be very different in different parts of the world. This leads to miners in areas with high electricity costs shutting down, and mining operations opening up in low electrical cost areas. This can lead to a majority of the network falling under one political jurisdiction. PoS avoids this problem entirely.

[jl2718]

Miners have to sell.

[jdgoesmarching]

That’s just centralization without extra steps.

[sanderjd]

It isn't obvious what this comment means. What is the "that" that is centralization? What are the extra steps?

[cyanydeez]

centrzlization will occur during any popularization.