Ethereum’s recent move to a proof-of-stake protocol has raised questions about the future of blockchain technologies, and whether they can scale effectively.
A recent Bloomberg article called this the ‘blockchain trilemma’. As the volume of activity involving tokens like Bitcoin and Ether grows, the slower and costlier it becomes to record and secure each transaction. There are various efforts to fix the problem, but all either make the system more vulnerable to bad actors or water down the decentralised model that’s key to crypto’s appeal.
However, the failure of other chains to adapt and scale shouldn’t lead to the false narrative that a decentralised, scaled, and secure blockchain cannot exist, says Bryan Daugherty, Founder of SmartLedger in a recent article published on CoinGeek, ‘Proof-of-stake is proof of misunderstanding.’
‘More than eight years in the making, it’s hard to believe that the world’s second-largest blockchain transitioning from proof-of-work to proof-of-stake is news.’
‘Not because it finally happened, but because after all this time, they still didn’t figure out that proof-of-stake is not the answer they’ve been looking for,’ he said.
This is because proof-of-stake networks like Ethereum’s Beacon Chain aren’t blockchains, said Daugherty. Instead, they have distributed ledger networks that mimic the structure and processes of real blockchains without any of the utility, security, or scalability.
‘‘In an ideal world, proof-of-stake (PoS) solves one of the crypto industry’s biggest problems—the infamously high carbon footprint of crypto mining. Crypto’s excessive energy consumption is a well-known fact and one that has led to proof-of-work (PoW) becoming synonymous with outrageously high energy expenditures. But this conflation doesn’t provide an accurate picture of PoW or PoS.’
‘Proof-of-work blockchains were designed to scale to provide the security and interoperability required to improve and replace existing currency exchanges. Scaling proof-of-work to allow for more transactions per block per second significantly reduces energy consumption by default. That a simple change in consensus mechanism will provide a more sustainable, affordable, and scalable protocol than proof-of-work is baseless.’
Proof-of-stake – a damaging misconception
Daugherty said this conflation is damaging on several levels, including the costs, energy efficiency and scalability of a true blockchain such as BSV.
Daugherty noted that there are also misconceptions about the energy usage of proof-of-work and how secure proof-of-stake platforms are.
While proof-of-stake is assumed to use 99% less energy than proof-of-work, this is little more than an idealistic theory because no system yet exists to measure the carbon footprint of proof-of-stake, he said.
This means that as damaging cybersecurity breaches continue to make headlines, Ethereum owners are accepting substantial risk in exchange for ‘projected returns’ that aren’t based on any factual assumptions of the new economic dynamics, Daugherty warned.
‘They know that scaling is the answer, and yet, are seeking it in all the wrong places. To add salt to the wound, Ethereum is citing the Buterin coined blockchain trilemma as an excuse for the network’s inability to provide the unmatched properties of PoW. This theory suggests that while a perfect blockchain is decentralised, secure, and scaled, no such blockchain exists because to have two of these three properties you have to sacrifice one.’
‘By simply understanding the intended use case for proof-of-work, this theory falls apart at the seams. With PoW all three properties are achieved because they exist simultaneously, and the more transactions there are on the network, the more decentralised and secure it becomes.’
The wrong move
He added that the costs of Ethereum are not set to decrease or lower gas fees, while the change will not result in noticeably faster transactions because the transition is not an expansion of network capacity.
‘Proof-of-work is not only the best existing architecture for currency exchange, but it’s also a groundbreaking system for secure data exchange with limitless utility potential,’ he said.
‘If those who understand the inherent capabilities of PoW cannot come together to see the value of allowing the tech to scale, more and more networks will follow Ethereum’s lead – sacrificing innovation and experimenting with people’s hard-earned capital and personal data just to feign sustainability.’