Decentralization is a topic the I have heard about on a number of occasions. Chiefly the debate between proof of work and proof of stake are heated subjects debated on forums all over the internet. Before I go in to the differences of PoW vs PoS vs dPos I would like to point out that I am invested in currencies with all three types of resolution. I think each method has merits and each currency should be considered on the value of the project. I have been listening to Dan Larimer in several of his talks and found his logic quite compelling summed up in one statement, “perceived reality of centralization and the reality of centralization.” Just the fact that there are over a thousand active crypto currencies and the top 50 are all vibrant communities creates competitive diversity on its own. Investors can leave one currency to find another.
Larimer’s understanding of the centralization of markets and the number of Block Producers (BPs) users could reasonably consider all came in to play when Larimer decided to hard code the number of BPs to 21 and the number of votes to 30. Through trial and error in his previous projects and an astute view of the voting audience he realized there was only so much that could reasonably be expected of voters. Larimer also found that Proof of Work mining became centralized as pools grew to become competitive by increasing processing power through specialized equipment. It could be argued that due to the size of mining pools for Bitcoin and Ethereum have become so large they are considerably more centralized than EOS. Either way the different methods tend to centralize in different fashions.
In the proof of work (PoW) corner mined heavy weights like Bitcoin, Ethereum, Litecoin, Monero, systems where blocks are derived from calculated cryptographic hashes that meet a required criteria are mined by increasingly large pools to maximize profits. The miners compete to find the next block. After successfully finding a block the miner is rewarded with a payment of the currency. It is essentially an easter egg hunt based on luck and processor power where your chance of resolving a block at any given point in time is no greater than any other point in time. A drawback to the process is the increasing difficulty of the calculation requiring huge investments in energy and specialized hardware to run increasingly larger and larger computer arrays to calculate the cryptographic hashes producing a competitive advantage through the number of computations, petaflops, a pool is able to produce. The energy required to run the computational processes to resolve a block are a challenge to profitability and have created a price floor where it becomes unprofitable to mine currencies. As a side note Ethereum is currently making the transition to a PoS protocol from PoW to increase its efficiency.
In contrast to proof of work, a proof of stake (PoS) systems delegates block production to assigned producers with a stake, ownership, in the currency. Currencies like DASH, PIVX, and NEO are resolved or rather forged by a concession of stakeholders. It is not necessary to show “work” to produce a block, each producer is elected or portioned based on the stake of the currency they hold. The owners stake their interest to determine which producer creates the block. The different currencies have various methods for determining which stakeholders become block producers at any given time, but essentially it is a system of trust based on vested interests of investors. The main challenge to the system is the accusation that it is not decentralized and could be shutdown at any time with a 51% attack. This is where a particular holder or consortium of holders own more than 51% of a currency and can corner the profits from all block production, block transactions on the chain, double spend transactions, essentially break the validity of the chain. So far the 51% attack is only a theoretical weakness, it has never been accomplished in the wild. The PoS weakness comes from the centralized control over the transactions of the currency by the main stakeholder(s). That is also their strength. Any stakeholder with a large amount of a currency has a vested interest in the survival of that currency and the attack, once identified, would destroy the value of the currency making the investment worthless.
The next step in the resolution of blockchain transactions came with Delegated Proof of Stake (dPoS). This is democracy on the blockchain. EOS, Steem, BitShares, Nano, and Cardano are examples of dPoS systems. Dan Larimer, founder of Bit Shares(2014), Steem(2016), EOS(2018), developed and refined DPoS and graphene technology. His projects experimented with between 20 and 100 Block Producers (BPs). What his experiments reveiled is that BP will produce multiple nodes and voters are only able to research so many organizations to make an informed decision. Ultimately EOS became Larimer’s current best answer with the data derived from his previous projects stated that +/-20 BPs were all voters could handle and remain decentralized without BPs creating multiple nodes. It also was optimized to promote some of the fastest transaction resolution speeds and volume in blockchain technology. Owners of the currency vote for block producers and those producers resolve transactions on the blockchain. It is similar to PoS because major holders tend to vote for themselves, but no matter what percentage the top holders of a currency have there will always be a given number of block producers. Block production rotates through each block producer in turn. In the case of EOS there will always be 21 block producers resolving a block every .5 seconds. Each producer is graded on honest validation of the blocks they resolve. A continuing consensus must be validated between block producers to prevent forking of the chain. If the blockchain diverges the longest chain, the largest number of block producers, is validated, and eventually the chain returns to consensus. An attack on the chain would have to corrupt ⅔+1 of the block producers on the chain over an extended period of time. This method produces the fastest and most scalable blockchain where every owner can participate in the vote for block producers.
Dan is a programmer, but I think of him more as a visionary inventor of systems. Dan’s stated mission in life is, “to find free market solutions to secure life, liberty, and property for all.”
My current go to page to see what’s going on with EOS block production and find information on BPs is bloks.io.
The 800 pound gorilla in the room is the question of whether PoW is really more decentralized than dPoS. I have read a lot of arguments on either side of the debate until I heard Dan Larimer speak on the youtube post “EOS is Centralized!! (Let’s take a look at this)”. I know the title sounds critical of EOS, but Larimer contrasts the current state of the crypto market vs the perceived reality of Bitcoin and Ethereum. As resources are critically pressed to resolve more complex problems. 50% of the market is controlled by 4 mining pools In Bitcoin. 50% of Ethereum is controlled by 3 mining pools. 50% of EOS is controlled by 11 block producers. From that perspective EOS is somewhere between 2 to 3 times more decentralized than Bitcoin. Larimer makes an even more relevant point, decentralization has occurred through completion between currencies. Investors aren’t locked into 1, 2 ,5 currencies. There are at least 50 or 100 good choices, and over 1000 that want to be the next Bitcoin or Ethereum. EOS, TRON, XRP, ect has capitalized on the weak transaction speed of mined currency and the overwhelming mining costs associated with today’s mining pools.
The last point I would like to make is one I found while writing my piece on Greymass. While discussing voting I wrote some information about the ranking of different block producers, and what I found was the ranking in the top 30 could change greatly over the two weeks while I was writing the article. Yes it is true that the top thirty block producers are relatively static but their ranking changes, sometimes hourly. Producers like EOSauthority and Greymass have raised in the ranking due to the products they produced to support the blockchain. There are still big holders of EOS like Huobi and Bitfinex that will be in the top 20 for as long as users hold their EOS on the exchange, but they even move up and down the ranks of block producers. The point is the blockchain is not controlled by static governance.
I am not advocating one system over another, and am invested in PoW, PoS, and dPoS systems for different reasons. I like various currencies for the values and resources they bring to the community. We should be open minded to the facts as they really are. Decentralized currencies aren’t really decentralized but like Bitcoin some are solid investments despite the current bloodbath. dPoS systems are faster and cheaper to run and are more viable use cases for the general market. I really think there is room for each systems in the cryptoverse. That may change as the systems begin to define themselves and as new projects develop new methods for resolving blocks. My opinion is the biggest danger to the crypto community is institutional money. When the currencies were a community of believers in the various projects the community grew at a healthy rate that led to the great alt season of 2017. It wasn’t until crypto began to turn heads in the institutional market that the trading purely for the sake of investment gain, shorting, and the rest that the community entered in to the deadliest bear market seen to date. We were way better off with small investors buying what they could that really believed in the ideas crypto stands for rather that the fast money big investment brought to the market. It came at the cost of control over the market by individuals that don’t care about the product and are only concerned with cornering and controlling the technology. If crypto is to survive in the form it was a year ago it will have to bring back the small investor with a reasonable chance to gain a real return on investment.
The current crash in value is only a temporary dip in the market, but to really bring back the market with an alt season that rolls everybody’s eyes back in their heads we need to bring the retail investor back to the table. While we are at it that use case to spend crypto without converting it back to fiat is critical to our future.
The best advice I can give is
Keep you mind open…
Be deliberate in your investment decisions…
EOS is Centralized!! (Let’s take a look at this)
What is Proof-Of-Work & Proof-Of-Stake?
EOS: Explanation of DPoS+BFT w/ Daniel Larimer – Part 1 of 2
DPOS Consensus Algorithm – The Missing White Paper
DAN LARIMER: Visionary Programmer of BitShares, Steem and EOS
Dan Larimer, Creator Of The Fastest Blockchains, Now Targeting Sub-second Latency In EOS
The Benefits of Proof of Work
Pros and Cons of the Delegated Proof-of-Stake Consensus Model
Steem- A Social Media Revolution Led by SMT
The rise of EOS and the price of success.
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