> Validators don’t need energy-intensive computers in order to participate in a proof-of-stake system – just a laptop or smart phone. This will make Ethereum better for the environment.
To me, this is the biggest win of proof-of-stake over proof-of-work.
I wonder if we’ll actually see flight from PoW cryptocurrencies to PoS at rates sufficient to reduce the current environmental impact. Anecdotally, a lot of the people I know who were early in Bitcoin are talking more about PoS coins as the natural progression and PoW as doomed tech. But until I actually see the transition happen, I remain (optimistically) skeptical.
Agreed. However it still is dominated by the "haves" vs the "have nots". Proof of stake is awarded to those with the largest stakes, which favors state-sponsored miners and works against decentralization.
I like how Monero's RandomX is designed to level the playing field: ASIC miners don't significantly improve over CPU mining so more people can participate in mining. Of course, this doesn't address pools, but it is a start.
I would argue that under both proof of stake and mining your income is always directly proportional to the amount invested, either in equipment or stake.
The main difference is the minimum barrier to entry, however under PoS you have access to various pooling services, which simulate consumer scale mining (complete with the associated inefficiency).
Except under mining, increased investment opens up access to better equipment like ASICs, access to cheaper energy agreements, etc. But no amount of $ unlocks the ability to validate faster (per unit staked).
>However it still is dominated by the "haves" vs the "have nots". Proof of stake is awarded to those with the largest stakes, which favors state-sponsored miners and works against decentralization.
where is the difference to mining? To mine you need GPUs and electricity which you can equate to $$$, just like capital you lock up under PoS. it effectively makes no difference.
and everyone earns the same percentages, whales only earn more in absolute terms.
The percentage is based on hardware invested or capital staked.
I don't think it should be. That is just lazily giving a pass to whales to dominate what is supposed to be decentralized. Totally counter to the spirit of cryptocurrency.
In PoS everybody gets the same rate of return. On Ethereum it's currently about 8% annualized, regardless of how much you have staked.
On Bitcoin everybody gets about the same rate of return, but major operations can generally get first access to the newest ASICs or special deals for electric power, so their rates are better.
No cryptocurrency has found a way to give the exact same rewards to every human participating. That'd require some kind of verified identity. It's always going to be a rate of return times amount invested in hardware/stake.
The difference is in the real resources used. If energy and hardware are used, that's a real cost incurred on society. If only currency is locked up, that only puts a cost on the stakers. As far as the rest of society is concerned, the supply went down, so the value went up, and there's no difference.
> Proof of stake is awarded to those with the largest stakes, which favors state-sponsored miners and works against decentralization.
Hopefully it won't be too bad. Here you can see the current involvement from different parties in the beacon chain https://beaconcha.in/charts
Currently "others" is ~52%, Kraken is 2nd with ~17%
I'm trying to understand a similar graph for Cardano (another PoS chain), but not sure I can tell anything from it about the distribution. https://cardano.bytemaniac.net/istoria/
it's also important to note that stakers can not withdraw yet. once withdrawal functionality is enabled I expect many more folks to stake their ETH because the uncertainty will be gone.
I am a solo staker and its been a blast learning about PoS and participating in the community. Right now you can earn ~7.8% rewards if you lock up your eth on your own validator. Once EIP1559 goes live (July) and the full transition to PoS merge around the end of the year there are some folks on the ETH research team who see rewards conservatievly going to ~25% [1]
What does the process for staking actually look like? I remember setting up lightning a bunch of years ago and ended up losing some fractions of BTC by messing things up along the way.
Is there something foolproof for staking right now, or is it a lot of "git clone this repo, copy this address to a config file" etc.
The staking base rewards will go down as more stakers stake eth, however, after the merge to PoS (End of year target) fee revenue will be awarded to stakers in addition to the primary staking rewards.
Reading through the FAQ on staking it says you will get penalties for being offline and the network eats through 800mb/hour which comes out to around 576gb/month.
Is this practical to do at home? Or are pools the way to go for people on consumer home internet?
The penalties for being offline are equal to the rewards you would have earned. It is okay to be offline if you have minor outage for few hours or if you're moving and will be offline for a few days. You simply would need to go back online for the same amount of time to make your rewards back.
I am a solo staker. My machine churns through about 800 gb/month. I am a huge advocate for solo staking if you have the hardware and have technical ability. I work in finance not software engineering, and i was able to set a machine up with no issue.
Check out the link below if you would like more resources or if you have any questions!
If you have a gaming desktop and do a complete system wipe, you will be downloading several terabytes of data in backups and games.
Most AAA games these days are in 100GB range, and a steam library of my friends occupies a couple of TB. Also Dropbox / Onedrive give you 1TB of space, and is easy to fill it up with videos and photos.
A continous stream of 1.7 megabits, seems reasonable on both FTTC and FTTH, and maybe even on a xDSL. Definately more systainable than GPU mining
It's pretty much guaranteed at this point. The staking network has been running since Dec. 1, with over 3% of all ETH staked so far. The initial migration is simple to implement and a high priority for the devs. Community support is very high, and once everybody switches to the new fork the miners have no influence.
The miners could keep running the old PoW chain but it's unlikely to have significant value. Exchanges will support the PoS chain and some are already offering staking services. Tokens collateralized by off-chain assets will use the PoS chain. Etc.
With the PoW chain having little value, miners will be deeply unprofitable and most of them will have to quit. Moving to other chains isn't much of an option because other GPU chains have little aggregate value.
The more people join, the lower the rate of return[1]. The max inflation is about 1.71% annually, if 100M ETH stakes. Total supply right now is only 115M.
Net issuance will be lower than that because some transaction fees will get burned. It's possible that the supply will actually decrease.
There's no limit to the amount of stake other than the ETH supply, but they're talking about setting a limit of 32M ETH, just because it'd be more efficient and they don't really expect it to get that high anyway. Under that plan the validators get automatically rotated if >32M stakes.
There is a high likelihood of a fork, but forks aren't necessarily harmful to Eth. The "rebelling" miners can't actually do anything to the proof of stake system.
The real people who decide what fork wins are the exchanges and users, and those people have no real reason to stick with PoW.
Miners will rebel and continue mining, some will mine on an ETH fork and others switch to other coins. GPUs will not be returned to gamers anytime soon.
Theoretically the ETH PoW fork will drop in value relative to the original ETH. That would decrease the mining reward and result in less mining (and more GPUs returned to gamers).
The goal isn't to "kill" the coin entirely, the goal is to reduce the amount of mining by 99% or more. And that's an easily achieveable goal. See Ethereum Classic which only uses 1% of the resources of Ethereum because of how low its price is.
Staking can be pooled just like regular POW mining pools. However unlike POW mining pools you have to give the majority of your funds to a trusted party whereas with POW mining the maximum you can loose is the unpaid balance between payouts which is usually some days worth of mining.
there will be decentralized & trustless staking pools such as RocketPool, where even if a loss of funds occurs the loss is subsidized through the entire protocol.
From what I understand, you risk getting margin called if the value of ethereum drops below the loan amount, so wouldn't you potentially need a large cash pool to offset that risk anyway?
You can stake with Avalanche (AVAX) today for a smaller price which will be decreased in near future. ETH like all other classical nakamoto algorithms have a limit on number of participants in consensus. Avalanche has no such limit on decentralization without sacrificing security or throughput.
Yeah, i'm working on multichain stuff now, and i've pretty much dropped geth/ganache for avalanchego for running simulations… really can't compete with the innovation on the consensus layer… and all the security tradoffs put forth in the eth l2's can be done with coreth for even more "scalability".
With the fracturing taking place now in the eth ecosytem, its only a matter of time avalanche sees more adoption just purely on the technical capability basis.
It's not all about the amount of APY, also which ecosystem you want to belong to and who you trust will improve over time too. Ethereum vs Celsius is a no brainer at the moment.
For me it's more about existing developer activity. In my bubble, 90% of the people are building with/on Ethereum or Polkadot. I usually build things together with others, not by my own, so having a large ecosystem is a requirement and so far, Ethereum is the only community that really fulfills that.
there is in fact a fast-merge proposal that has community & dev support with a preemptive date of October 2021, if we're conservative February 2022. Once the merge happened PoW will be shut down and all transactions will be validated by the Proof of Stake consensus.
> Rewards are given for actions that help the network reach consensus. You'll get rewards for batching transactions into a new block or checking the work of other validators because that's what keeps the chain running securely.
The unstated gotcha here is that the chain operates through a variation of BFT agreement where staked coins vote for new blocks. All the usual BFT constraints apply -- namely, if fewer than 66% of the staked coins can reach a quorum, the chain stalls. This would mean that the network is only as resilient as the nodes that contribute the least-resilient 33% of the coin votes.
I bring this up because it has some pretty terrible resiliency implications below.
> Although you can earn rewards for doing work that benefits the network, you can lose ETH for malicious actions, going offline, and failing to validate.
If the coin is successful, then this really serves to incentivize DDoS attacks.
PoS is fundamentally a "rich-get-richer" system -- the means of making new coins tomorrow are intrinsically tied to owning coins today by the protocol itself. There's no way around this.
This intrinsic coupling has two significant economic implications, which in turn impact the chain's resiliency:
* The price of coins is a function of their expected future revenue from staking. If you want to become a staker, the expected value you'll pay for your coins will include not only the spot price of the token, but also all the future (but time-discounted) revenue that coin will earn you from staking it. This is the lower-bound case, too -- if there's something even more profitable than staking you could be using the coins for, then the expected price of the coin will reflect that activity instead of staking.
* Coins minted from staking would need to be continuously re-staked in order to maintain current profitability relative to your competitors. Stakers can't afford not to do this, unless there's a buyer (or use-case) that can give an even higher ROI than all future ROI from staking block rewards.
This impacts chain resiliency as follows:
* There will never be any spare capacity for fail-over, since staking your coins will always be more profitable than keeping them on stand-by in order to recover from failed block producers. If the chain encounters a liveness failure (e.g. more than 33% of the staked coins go offline), new block producers can't just step in and take over without buying the coin first (and the more successful / long-term-valuable the coin is, the higher that price will be). The price of the token would either need to first come down to whatever level the highest-bidding poor but honest block producer can afford, or the protocol would need to slash a portion of the 33% of offline coins until quorum can be met. Neither of these things is instantaneous, so you'd be looking at a dead chain for some non-negligible amount of time. (Note that this is not true for PoW -- mining rigs can lie dormant until the difficulty falls to the point where it's profitable to turn them on, thereby ensuring that a liveness failure in the profitable block-producers does not lead to an overall liveness failure for the chain).
* It's very costly for new honest block-producers to join the network, which will make the network brittle. As the token becomes more successful and its long-term value realized, honest block producers will have to pay more and more up-front capital costs to start participating. The only people who can sell them coins to stake are their competition, so there's little seller information asymmetry to exploit here -- the seller knows exactly how much these coins are worth to the buyer for staking, so they will always price that in. This is a direct consequence of the means of coin production being tied to coin ownership.
* If the coin is successful, then there will reach a point where the cheapest way for a block producer to grow their revenue from staking is to knock other staking nodes offline (or hack them and cause their coins to be slashed from bad behavior). There's no fail-over capacity to take over block production if the staking coin quantity decreases, so the attacker only needs to succeed once in getting their competition slashed. Then, their fraction of all coins staked will increase due to other coins getting slashed. (Contrast this to PoW, where the attacker not only needs to knock the competing block-producer offline, but keep it offline indefinitely).
It would be a mistake to say that Ethereum 2.0 is in any way similar to Ethereum today. The economics of its PoS system make it more brittle, less resilient, and less egalitarian than Ethereum 1.0. Moreover, it would be misleading to say that Ethereum 2.0 is an open-membership system -- the economics make it so newcomers can't compete with the initial block-producers unless the price of the token always goes up faster than the initial block-producers believe it will.
> the means of making new coins tomorrow are intrinsically tied to owning coins today by the protocol itself.
It's not a shocking economic situation that you can use capital to acquire more capital. I don't know exactly what equilibrium the long term staking rewards will tend to, but it's not very different from interest - where for nearly no risk your capital lodged with a bank increases. The other side is that in a healthy financial system, locking money up has a cost too, so it's appropriate to recompense those who do.
Another angle is that with the arrival of hashrate markets, a PoW miner can attack a blockchain that they have negligable investment in. In PoS that's not possible. You can't attack a PoS chain without a large investment locked into it.
You seem to be warning of various bad effects that we haven't seen in fiat currencies, despite the fact that interest is analogous to staker rewards. For example, the fact that I don't sell someone with EUR my USD without taking into account the interest that EUR can earn vs USD has not directly led to either currency becoming unreasonably expensive to acquire.
I see that Vitalik conveniently left out the part where PoS breaks down if you hack a staker's node and destroy their coins (either by knocking it offline or by forcing it equivocate -- both are slashable offenses). That is far, far, FAR cheaper than trying to buy your way in.
> You seem to be warning of various bad effects that we haven't seen in fiat currencies, despite the fact that interest is analogous to staker rewards.
Except, I'm not. PoS and fiat currencies have very little in common. If PoS was a fiat currency, then the people who staked more of it would not only get more interest yield, but also get to collectively decide who else gets to spend their money, how much they receive, and when (i.e. by deciding which transactions get included and which do not). This is a far, far worse outcome.
> Coins minted from staking would need to be continuously re-staked in order to maintain current profitability relative to your competitors
Everybody gets the exact same rate of return regardless of how much they have staked. Each validator has 32 ETH and gets the same amount of reward. You can take your profits and make a new validator or use them for something else, either way your existing validators will have the same profitability as everyone else.
> Everybody gets the exact same rate of return regardless of how much they have staked.
I don't think that's true. The amount of ETH created per block is determined independently of the amount of ETH staked. So if you stake 100 ETH and I stake 100 ETH, and we're the only stakers, then the protocol gives us each 50% of the ETH minted. But if someone else comes along and stakes 200 ETH, then you and I only get 25% each.
This means that staking rewards are zero-sum. If the total reward stays constant, then my rewards per block increase if your stake decreases and mine stays the same (or if mine increases and yours stays the same). Therein lies the problem -- if I'm going to remain competitive with you, then I need to re-stake as much of my ETH block rewards as you do in order to keep receiving ETH at the same rate as you.
The total ETH created does depend on the amount staked. Here's a table[1] and formula[2]. The total reward doesn't go up linearly with the number of validators, but it does go up. Lowering the incentive for attacks like you mention is a reason for that.
And while having fewer validators gives you a somewhat higher reward per validator, it's still that case that all validators get the same reward in any given block. Everyone is equally competitive. Someone who reinvests will get higher absolute rewards than they got before, but they pay the price of locking up more capital.
In the same way, a miner could reinvest profits into more mining equipment, but that doesn't make them more competitive, just bigger. Their profit margin will be the same (barring economies of scale that don't exist in staking).
> The total ETH created does depend on the amount staked. Here's a table[1] and formula[2].
Thank you! I was unaware of this. I stand corrected.
However, my original point stands under the added constraint that we don't have enough tokens to alter the yield (i.e. staking our tokens won't push the total staked quantity across a "yield boundary"). The difference in participation between two different yields is considerable, so I would expect this to be the common case.
> Everyone is equally competitive. Someone who reinvests will get higher absolute rewards than they got before, but they pay the price of locking up more capital.
Joining later puts you at a disadvantage, because you have to buy coins off of people who could be staking them. That's problematic from a resiliency perspective, because it makes it harder for new block-producers to come online. It also means that there's no "reserve capacity" in the system to tolerate the sudden loss of a large number of staked coins. This isn't true in PoW, because obsolete miners that aren't profitable to run today could be brought online in a pinch if enough profitable ones were to suddenly go offline.
> In the same way, a miner could reinvest profits into more mining equipment, but that doesn't make them more competitive, just bigger.
These aren't comparable. I could come up with a better, more efficient way to generate PoW outside of the protocol. But in PoS, the protocol mandates that I only use staking to increase my coin income. Per my original point, what this means in practice is that there will come a point where it's cheaper to increase my staking yield by DDoS'ing staking nodes, who will be slashed as a result (the link you gave indicates that the slashing begins after 25 minutes of over 33% of the staked tokens being knocked offline).
Not sure if this is what you meant but there's no actual "yield boundary," it's a continuous function. The table just gives examples of the function outputs.
I think you're overestimating the amount of ETH that will stake. Right now it's just 3%, and they think it's unlikely to go over 30% or so. ETH is used for a lot of stuff besides staking, with major uses so far including collateral for stablecoins and other defi, NFT purchases, and trading. The daily ETH trading volume right now is $34 billion, which is more than triple the staked amount.
Also, while losing over 1/3 results in a loss of finality, we'd be losing something that doesn't exist in PoW networks in the first place. The network continues to run[1], with a nonzero but low chance of reverted blocks, while the quadratic inactivity leak burns away stake until 2/3 of remaining stake is active again.
DDoS that knocked out over a third of the network, running on ISPs and hosting services all over the world on various independently-developed clients, would be quite a feat, and not likely to be sustained for very long. Since there will likely be plenty of non-staking ETH, more stake will be deposited after the attack, bringing the network back to the equilibrium of satisfactory returns. Or, if the attack were so severe it scared people off, then the price of ETH would also be affected, reducing the value of the attacker's stake.
Same can be said why ETH PoW wont be displaced. Too much is already invested in it. Move to a different project altogether, if you want a sustainable future.
> Validators don’t need energy-intensive computers in order to participate in a proof-of-stake system – just a laptop or smart phone. This will make Ethereum better for the environment.
To me, this is the biggest win of proof-of-stake over proof-of-work.