Proof of Work vs. Proof of Stake

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In this video, I discuss the tradeoffs between Proof of Work (PoW) and Proof of Stake (PoS), as competing consensus mechanisms.

PoW uses much more energy than PoS, but then again storing gold at Ft Knox uses a lot more energy than storing it under your bed.

The huge amounts of energy consumed under PoW make Bitcoin secure-- it becomes very expensive and difficult to rewrite the tip of the blockchain, much less the whole blockchain. Under PoW, there is no way to cheat-- you need to burn the electricity to prove that you've done the work.

Proof of work is real work that requires real energy. Proof of stake is just providing a signature.

Further, PoS leads to more and more centralization over time, as the rich get richer. By contrast, PoW incentivizes the search for faster chips and cheaper energy. PoW leads to innovation, while PoS leads to stagnation and centralization.

Under PoS, everyone needs to stake (with its attendant risks of coin loss), or risk getting diluted. Staking income is almost certainly taxable, which means that Ethereum will need to find billions of dollars of new money every year just to allow stakers to sell their ETH for fiat to pay taxes.

In the event of an internet partition, it is very easy to pick the official chain under PoW-- it's just whatever is the longest chain after the partition has been resolved. Under PoS, there is no objective neutral way to pick the official chain. Probably Vitalik will get to decide.

Not investment advice! Consult a financial advisor.

ETH staking:

Ethereum's Dirty History:

ETH2 staking is already becoming centralized:

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#Bitcoin
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[Bitcoin_University]

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[richg]

Good morning all and thank you Matthew! Nothing better to hear, while all the Fud on BTC is circulating, that keeps me firm on my position.

[klion]

I think I've argued with you before that it doesn't matter but after studying the economics of miners I do think now that proof of work is superior to proof of stake for security. I think proof of stake provides adequate security for Defi/NFTs, but for a global currency proof of work is the right choice.

[larsvongraff]

Good insight TU! Thanks for the help here in the presentation of the structural considerations. BTW, my wife and I spend usually an hour or so discussing each of your videos with lots of follow-up research and analysis of our own to help us strategize for the future (in a macro sense). It's really helped make our relationship stronger and I am grateful to you as a result. Kind regards

[Chuck-beed]

Thanks again Matthew for your thoughtful analysis. Your insight cuts through FUD and SPIN like a hot knife through butter.

[Fabio-mcmb]

Thank you Matt! I totally agree that POS recreates some of the same despicable situations of the fiat system as you wisely stressed here or the elevate gas module used by Ethereum, only profitable for whales not for little investors who had to pay sometimes more in gas fees than in the amount invested. Love the pic of the three moschettieri you picked in this context :)

[milliontv]

Good insight. People in the mainstream talk as if PoS is an ‘upgrade’ without acknowledging the trade offs that come with it

[sirkyoj]

Even better the gold has not been seen in decades. It’s gone.

[InvestingEducation]

The battle betwn bitcoin and altcoins comes down to this

[codywy]

good morning Matthew!.... thanks for the videos...learning a lot from you.

[timloughnan]

I think there is a lot at stake ( excuse the pun) for the global community in the analysis you are offering. Your work is extremely important. Thanks for the clarity and courage to offer these insights.

[ttocselbag]

Thank you for this post Matthew. From a simple layman’s perspective, PoW is clearly a more secure and trustable validation tool than PoS. It seems PoS is far too vulnerable to greedy, centralized control. Decentralization and true security is exactly why I invested into crypto initially. I do own unstaked ETH, but I really am dubious about the whole ETH 2.0 push. .

[dinopanteloukas]

Good morning Matthew. Good morning everyone. A beautiful day in NY. 🌞🌞. Enjoy the day

[sumofighter]

I am really happy I found your channel. I love Bitcoin. There is currently no better asset available out there. Bitcoin in its design is perfect... it really is.

[RootBeerGMT]

Absolutely awesome video. First rate as always.

[ryankissee]

It kind of sounds like proof of stakers in a crypto network are what the commercial banks/Fed partnership are in the modern day fiat system. Not completely congruent, but they do both share a centralized entity authority…makes me think that ETH and Cardano and the like have kind of defeated the purpose of crypto?

[gokuafrica]

Here's how I see it:
1) Inflation is present in both systems. Yes and before you argue both schools have coins with limited supply. (EG: BTC for POW and ADA for POS)
2) Inflation is a little less in general for POW coins compared to POS coins but ironically it is easier to keep up with inflation in POS rather than POW (Easier to stake than to mine).
3) Staked coins sit there and do nothing is an equivalent argument to btc electricity consumption is useless and does nothing. The reality is both are used to secure the network. When miners spends electricity/energy to mine a block he/she is taking a risk that they may or may not be the first person to mine the block. Similarly, validators with staked coins reach consensus on the network and the staker is taking a risk that the validator is not a malicious entity because in that case they would lose all their funds.
4) Centralization is a big issue on both sides. Even with the latest hardware, the chances of successfully mining a block without being part of a mining pool are next to nothing. Similarly, staking involves people coming together to pool their funds because the common person won't have enough coin/technical knowledge to maintain their own validator.

The answers to which is better is not a clear one therefore. Both have its strength and weaknesses.

[Brandon-xpob]

Interesting. So funny how(some) people begging their crypto journey with all altcoins, then altcoins and a bit of Ethereum, then altcoins with ether and Bitcoin, then start dumping their alts to accumulate more Bitcoin, then think about dumping Ethereum to have only Starting to feel like that

[TekaDon]

97k subs last week . . . Now 108k subs . . . Number Go Up

[michaelmims]

What coin is that guy in the middle between ETH and ADA?