Bitmex Research: We Doubt Ethereum’s Ability to Reduce Reliance on PoW
The proposed and upcoming changes to the operation of the ethereum cryptocurrency have been a matter of debate recently, with questions like employing ASIC resistance mining, capping and others splitting the community. Now an outside party is also taking issue with the concept of ethereum shifting away from PoW.
Pure Proof of Stake Possible?
Bitmex Research has released their latest report, meant to serve as a guide for understanding proof of stake (PoS) consensus systems and to review the latest ethereum proposal. PoS is an alternative to bitcoin’s proof of work (PoW) which is regarded by some as being less susceptible to mining centralization and more “environmentally friendly” – an issue which is often used to attack cryptocurrency mining by greatly overstating its power usage.
The very basic idea is that instead of miners controlling the system, coin holders will guide it based on each’s share of the pie. This is meant to align the cryptocurrency with the interests of long term investors. (For a more complete technical explanation you can read Bitmex’s paper which also includes a Q&A with Vitalik Buterin.) However, PoS also brings its own set of problems which the researchers study based on previous cases and explore how they can be mitigated.
The first issue is the “nothing at stake” problem, wherein the same stake can be applied to multiple competing chains for risk-free rewards, unlike PoW systems with energy costs. Another potential issue with PoS is the so called “long range attack” problem, allowing someone to buy a private key which had a large token balance in the past and then generate an alternative history from that point. Lastly, the researchers point to the issue of “stake grinding” with pure PoS, wherein stakers could try to manipulate the content in blocks in order to allocate themselves future blocks, resulting in the use of more and more computing power to try alternative blocks and essentially recreating a PoW system.
Proof of Work Here to Stay
When looking at Casper specifically, compared with previous attempts at PoS, Bitmex finds its hybridization approach will not necessarily lead to eventually bypassing PoW down the line as intended. The researchers’ final conclusion is that the proposal leaves ether very reliant on PoW mining, both for block production and for ensuring the system converges on one chain.
Bitmex explain that: “Although PoS mining may mitigate some risks, it is unclear if it makes a net contribution to convergence or security. Critics of PoS could therefore argue that any rewards redistributed from PoW miners to stakers unnecessarily dilutes system convergence and security.” And they add: “Although we think the current relatively conservative proposal could work, the nothing at stake problem could be a significant challenge. Therefore despite the plan to use this proposal as a stepping stone, as part of a gradual shift towards a full PoS system, this will be significantly more difficult to achieve than some in the Ethereum community think.”
Is switching from PoW to PoS a good idea for any cryptocurrency? Share your thoughts in the comments section below.
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