According to a new article trillions of dollars are waiting to move into the blockchain space. The real question would be could any blockchain handle such an influx of capital at this time? In my humble opinion, none of the blockchains are currently secure and this includes Bitcoin. I see problems with pure proof of work which I'll highlight below.
The problems with proof of work (Bitcoin)
The main problem with Bitcoin style proof of work is that it centralizes power into the miners. In essence Bitcoin may be described as a constitutional monarchy where the protocol itself is like a constitution and the mining monopolist (Monarch Mining Inc) can be viewed as a monarchy. The problem with this form of governance is that it is very fragile and the reason it is fragile is because the interests of the miners don't align with the interests of the users. In my humble opinion, a truly secure blockchain must always put the interests of the users first and to do that requires a feedback loop between the stakeholders who have something to lose and the developers.
In pure proof of work the developers and users have no say yet also have the most interest. Miners can over time gain control of the coin and if a mining cartel or cabal or Monarch Mining Inc were to take over then this clandestine mining organization would be able to choose the winning forks or simply strategically fork in such a way as to take control and keep control over the evolution of the coin. Under this set up there is nothing to guarantee that the coin over the long term will respect the rights of individualusers or adhere to the specification.
Hybrid Proof of Work + Proof of Stake
My preference from a governance and security perspective is either pure Proof of Stake or hybrid Proof of Work + Proof of Stake. In the case of currency application then the hybrid model can make plenty of sense because you can have something like Bitcoin which also must respect the rights of stakeholders. The stakeholders in essence would be the guardians (think Plato's guardians) who keep mining honest. DIshonest miners can simply be removed from their positions which is something that isn't even possible under pure Proof of Work. Under pure Proof of Work like with Bitcoin it is not possible to remove the miners and even when you fork the miners remain the monarch who can choose which fork will win. Under a hybrid model if miners promote a direction against the interests of stakeholders then the stakeholders have veto power over all authority in the network. Authority is a privilege under proof of stake which is given and can be taken away which in my opinion is critical to a network being resilient and having an ability to recover from a successful attack.
In general the security is about the incentives and in pure Proof of Work the incentives are not well aligned. In addition, if miners are corrupt they don't have anything to lose because their mining equipment doesn't go up in smoke if they collude to gain control of the network. Under Proof of Stake they mine with their $ which is captured in the tokens used as collateral and their collateral can go up in smoke. This allows the network to trust them because they actually have something to lose when they mine with the network token as stakers (they can lose because token price collapses or if they violate the rules).
Conclusion
Is the blockchain space really ready for trillions of dollars as early as 2018? While it sounds nice because Steem would benefit I would say at this point in time the security of most protocols cannot yet handle the sort of growth in price. If these trillions are spread out between many protocols then I think perhaps the entire space could handle 1 trillion in 2018. That is to say all of coinmarketcap as a whole worth 1 trillion and that would have to be spread out a lot more than it is now where it is very concentrated on a few coins at the top. This is because currently the governance capabilities and scaling capacity of even the top blockchain projects are very limited and these limitations will become very apparent as more money (and greed) flow in.
I make a prediction:
I expect Bitcoin to collapse over time as users discover they have no ability to influence the evolution of the protocol which favors miners almost exclusively. I expect over time users to flow where they have the most control of the protocol.
Proof of Stake and hybrid Proof of Work + Proof of Stake protocols will in my opinion capture mainstream users. Proof of Work coins will in my opinion continue to be traded and the price may continue to rise because on some level miners are running what resembles a casino. At the same time miners have no reason to care about the rights of users and so the casino doesn't have to produce anything of utility over time or aim for mainstream adoption.
Finally, none of of my posts are investment advice. Feel free to comment and tell me how I'm wrong if you think I'm wrong in my prediction.
I have always felt that Bitcoin has to fail at some point. Compared to the Steem blockchain it is out of date as I understand it. It is not the technology that is driving the Bitcoin price but the FOMO. Greed of course is what drives anything when there is money concerned. It seems inevitable that, try as we may to create a fair decentralised network, that somehow it ends up being control by the few.
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According to this article, Bitcoin developers have faulty incentives as well.
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The government does not need to purchase the miners. They ready own the infrastructure. Rember what happened in Egypt during the revolution. The government shut down all internet access. In that senario crypto currency has no value. You have talked about net neutrality in another post. I think we are moving toward a cashless society and the central bank will have more control than ever. Don't get me wrong I love the idea of Blockchain and decentralization, but I don't think the powers that be will allow us to be freed from our chains. It seems that we are doing exactly what they want and we are volunteering to do it
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I would argue crypto would have much more value if the government shut down the Internet. People would use radio waves to send packets to make transactions and if that fails they'll use pieces of paper.
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This article validates what I've seen some speculate . Wealth needs to hide somewhere to crash the U.S . FIAT currency . The debt structure is not sustainable and austerity doesn't bring in votes . This may be the something that one day needs to give way .
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Possibly, a major diversification might be extend to the block-chain and cryptocurrency.
Evidently, it smoothens international transaction and money transfers. A major interest and investment into it by governments and countries of the world would be well applauded
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Reading all your posts I have observed you're always giving your honest opinion on every topic and that's a thing we all should appreciate.
Steem On & Never give up!
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Bitcoin was a prototype to what the future might hold but falls short of addressing centralized concerns and the powers that be can control all major stakes in a coin through POW or POS. Why is there no outrage over huge mining organizations? it's no different than a central bank that can inflate or deflate currencies with very little effort. The future looks bright but much imagination and work is ahead. First regulatory bodies will have to be eliminated coupled with a fair distribution system where hording huge sums of said currency is useless or even harmful to the horder.
Let us not forget, currency being exchanged for goods and service has value & currency sitting still serves only the ego of the holder at the expence of all others.
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I used to be in banking and banking transactions are valued at trillions of dollars a day. Once the banks decide the blockchain market is reliable, they will be putting trillions through and into blockchain ventures.
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Interesting assumptions @dana-edwards - I must admit this is the first post I've read that takes this outlook and its great to read other perspectives.
Certainly exciting times ahead. I think you'd like my video on Monero, the cryptocurrency that focusses on privacy. Would love to hear your thoughts on our assumptions.
Up-voted and followed.
Anton
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Awesome Words That How you Describe it !
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Appreciable work!
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I think the future is Proof of Stake. We just need to wait for these protocols to prove themselves as secure enough. DPOS is one good example, maybe a bit too centralised but it has its benefits. Proof of work is not sustainable in the long therm. Even if we get all the energy from green resources it will be wasted energy too.
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How many times has DPOS been hacked vs POW? I would say from a practical perspective at this time they have similar security guarantees. Both are secure enough for a large network and DPOS actually handles more transactions per second so it's doing more with less.
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There aren't many POS coins which would be of a particular interest for hackers. If you manage to hack Peercoin it would not be very profitable. POS is still new compared to POW and it will need some time to mature. It is always the case with new technologies.
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very interesting
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Upvoted. Good analysis. I think it would nice too to present both pros and cons of the proof of work / stake.
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The benefit of Proof of Work is it does offer a better protection against double spending which is why I prefer hybrid approaches for immutable ledger currency application. It doesn't however in my opinion offer more security as a whole per dollar spent over Proof of Stake.
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ooopps, there goes the rabbit hole... that is what one gets with any form of government, collusion will happen no matter what... sooner or later
there is not more corrupt than wall street, so bitcoin will be stained with its sins and crimes, meaning that more of the same can be expected, regardless of the currency used.
bitcoiners will continue to rush in and eventually may cause a systemic shock as the world is petro-dollar based. Beware of any boom. Value cannot be stretched indefinitely. Unless the goal is to crash the world economy, that doesn't make sense... or wait...
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In Bitcoin there is no cost to miners for attempts at collusion. In fact it's not collusion resistant at all as there is no way to remove or punish miners. Miners in a way are the aliens that govern the protocol.
What would stop Wall Street from buying Monarch Mining Inc?
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where there is money there is power... 5000 years of history proves this. Asserting otherwise seems to indicate a lack of monetary history. There is nothing new under the sun. Stephan Molyneux had an excellent video about this. The NSA had already a paper about cryptocurrencies in the late 1980s
It is irrational to think that the monetary powers are going to bow down
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I think you are mostly right, but need to weight also that unlike constitutional monarchy, there is a cost to mining, and its not appointed authority, but competitive game that ends up favorizing economy of scale aka firm theory.
But it ends up with the situation that yes in the end, miners could prevent a tx to be mined, can decide order of mining, and there is very little that can be done about it by non mining nodes.
The main diff in this regard with stake & pow is that stake is more akin to permission based system, which allow more personnalisation of the stakers, as they are linked to private keys, and can allow more control on who is behind the block generation, and allow to be extented to dpos, and goes more toward democracy.
The main problem of staking is that its very easy to stake on multiple chains, and to have multiple competitive chain without a good objective manner to objectively decide which one is the best one.
But to me all coin as they are made will lead to centralization, pos coin are generally launched with ico because there cant be an easy way to distribute coin fairly, and always end up oligarchy.
There are many reason imo why it wont go mainstream in current state of things, i think mainly because of many scams, and cult mentality that look more and more like conning, and no way to deal with this properly, and community is not able to really have a good objective look on the situation, just looking trading charts on exchange trying to catch the next buzz word.
There is not much anything platonic in blockchain, leadership is not based on ethic education, or abstract idealism, its always raw economic competition, dpos can go in the way to democracy if staking node can be identified as politic actors.
But mostly politics and philosophy is abstent from blockchain governance system.
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Once you buy mining equipment for a specific hashing algorithm the cost is paid for all future chains which implement that algorithm. Comparatively speaking this is rather cheap for a company which can simply specialize in creating the ASICs in a place such as China. Also, computing power is not something high tech countries lack, so this favors high tech countries with cheap electricity.
Mining farms, mining pools or more clandestine mining organizations, may already control multiple Proof of Work chains already.
That is the problem with Proof of Work but the difference is you have to spend the money for each chain. You can't avoid buying into each chain to get a stake in each chain with Proof of Stake. In mining once you have your mining farm you can use it on multiple chains which use the same algorithm. If the mining farm is CPU based then you can use your CPUs. If necessary you can even use a botnet to mine clandestinely in the background without any way to track who is doing it.
Proof of Work does indeed reward botnets and underground mining groups.
Centralization in terms of some holders having a bigger stake than others does exist but those holders also are taking more risk than others. In essence we can trust them because they have more to lose as well as more to gain. In POW the miners can simply mine another chain and have nothing to lose if Litecoin goes extinct.
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Mining has a cost in elecricity bills, asics heats and consume lot of power, to compute tge billions hashes it still cost something each time, not only buying the asics.
Each time they compute hash they take the risk to mine the block for nothing because someone else will mine it first, and waste the power used to compute the hash.
If you mine all day with an asic farm, it still has a high cost, if the blocks mined are not accepted, they still loose money.
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Move, then steal, and then they will say: Oh - all the money was lost because of the insecurity of the blogger. But in fact they were stolen. Wait here for such news.
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Thanks for sharing your insights. One thing I didn´t get. Aren´t miners stakeholders as well? Since they are rewarded in coins, it is their utmost interest to have stable prices. So to a great extent their interest overlaps with that of the users. OK, they could collude, but this wouldn´t negatively impact their only source of income, would it?
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I started following you a week ago. All your publications are wonderful and useful. Thank you
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Very informative post about Bitcoin. Thank you for sharing your knowledge.
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According to this article may be helpful as well. Thanks for sharing.
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Very informative post. Thank you for sharing your knowledge.
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thank for your great information and post.
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Thanks for sharing. This may be helpful as well.
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Reading the article you referenced I'm under impression that all those trillions might go into funding for the new permissioned blockchains wall street chooses to adopt. So we might not have a problem of too much money coming into cryptos yet.
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Wall Street should do that without any hesitation. Blockchain is a perspective area for investment, and there are a lot of segments that can be improved.
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its future!
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