[swensel]

I do think there will be some centralization at the exchange level. As of April 2021, Kraken had 600,000 ETH staked for ETH2 [1].

It's not in the interest of Kraken or Coinbase to disrupt one of these PoS networks, but there is some barrier to entry for staking ETH2 or other PoS coins on your own, vs staking them on an exchange. In the case of ETH2, if your staking node goes down, you get slashed and lose some ETH. If there isn't slashing (not all PoS coins have that), I don't see what guarantee of network security or uptime there is.

I'd be curious what PoS coin experts think about this part. It seems like PoS / staking can lead to centralization. PoW has energy concerns for sure, but it has so far demonstrated decentralization pretty well.

I'm legitimately curious about this. I'd love for PoS to be feasible and am trying to understand it more.

[1] https://en.cryptonomist.ch/2021/04/20/ethereum-2-0-600-thous...

[xur17]

I definitely do think centralization is a risk of PoS over PoW.

> It's not in the interest of Kraken or Coinbase to disrupt one of these PoS networks, but there is some barrier to entry for staking ETH2 or other PoS coins on your own, vs staking them on an exchange. In the case of ETH2, if your staking node goes down, you get slashed and lose some ETH. If there isn't slashing (not all PoS coins have that), I don't see what guarantee of network security or uptime there is.

This is actually one place where ETH has tried to incentivize independent staking - the penalty for downtime is equal to the incentive for mining. In an extreme example, if you are down for 6 months of the year, and up for 6 months, the downtime costs should cancel out the earnings from the other 6 months. One caveat to this is that there are larger penalties for correlated downtime (ex: if a large portion of the network is down). This is to de-incentivize centralization of mining.

That said, as someone fairly technical that could run his own staking node, I am seriously considering using a centralized service, or at the very least using a vps. This makes me think that the the majority are going to be independently run on a slew of hosting providers and via centralized hosting providers.

There are also some interesting "decentralized" options like Rocketpool that haven't launched yet, but will allow staking via smart contracts against a pool of random nodes.

And then at the end of the day, the choice in staking providers should allow the network to at least react to centralization risks. Say a locality forces a provider to censor transactions in some way - I imagine folks will move their funds to a provider in another country, or switch to something like Rocketpool, effectively working around the issue.

[nootropicat]

>but there is some barrier to entry for staking ETH2 or other PoS coins on your own, vs staking them on an exchange

This is true, but those exchanges either charge fees or are going to charge them, making it more profitable to stake at home. Because offline penalties depend on correlation to how many other people are offline, it's actually safer to stake at home. Eth was accumulated primarily by devs that understood its value before everyone else. Devs are in general paid well. As a result, it's nothing special for those individuals to own thousands of eth - it was even possible to buy eth below $100 as recently as in 2020. Those 600k eth on Kraken aren't that much relatively.

Right now it's very early and many people aren't staking because there are much higher returns elsewhere, and before the merge withdrawals aren't possible, so you can't even go back if something better appears. I fully intend to stake at home once extreme yields elsewhere stop - in the long run staking is likely to have the highest yield on eth.

>PoW has energy concerns for sure, but it has so far demonstrated decentralization pretty well.

Mining is extremely centralized in China. Mining has infinite economies of scale + less efficient miners are pushed out, so the most efficient entity/location is certain to control all hashpower eventually (not necessarily China). https://www.nasdaq.com/articles/bitcoin-mining-hash-rate-dro...

[0134340]

Centralization meaning those who have more gain more? I'd love to hear about any currency that doesn't have this feature/bug. Those who gain power tend to be able to acquire more by bootstrapping from prior power; it's pretty much universal. Even PoW has its own form of centralization in that those who have more can become richer and more easily gain therefore leading to maturation (centralization) of the currency.

[swensel]

My understanding is those who have more coins on a PoS network have more stake / power. This can matter if there are things like on-chain governance / voting rights, depending on their stake. Those with more stake would also get more staking rewards (it's like an APR % return based on the total staked), and if they stake their rewards as well, then they'd have even more total stake on the network. There also are concerns with those having a majority of the stake in a network being able to disrupt or attack the network (things like slashing based on poor behavior can prevent bad actors from wanting to do that, as they would lose some or all of what they had staked in that case). There are also different kinds of PoS though, and I'm not an expert on it.

[0134340]

Yes, that's a feature or bug, however you see it, that's universal in capitalism, even communism or socialism what implementations I've read about. I guess if one isn't happy with those that have power in one system, a person should switch to another system. It's just so universal that I don't think there's any other way around it other than switch systems as none are perfect, all insofar as I can see are susceptible to the power of consensus.

We've tried to mitigate it with constitutions in the political world and it helps to some extent but many would agree that there is still an exploitable hole in that those with power can use their own to gain more or mitigate risk. And any time you mitigate that feature/bug too much you run the risk of decreasing reward for work and stake, thereby delegitimizing the system itself or in the case we speak of, your currency. So pick your poison.

[randomhodler84]

It is in their interests — remember when CZ asked if it was possible to rollback BTC before the hack? Imagine if you actually gave the exchanges this power. Nothing to stop them staking with customer funds. The exchanges do it now with other PoS shitcoins. PoS is the death of decentralization.