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Proof of Stake Fallacy

Eric Voskuil edited this page Apr 20, 2019 · 12 revisions

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Confirmation security requires a person of authority to order transactions. Bitcoin periodically assigns this authority to the miner who produces the greatest proof of work. All forms of work necessarily reduce to energy consumption. It is essential that such proof be independent of the chain history. We can refer to this as “external” proof.

The only other source of ordering authority is therefore dependent upon chain history, which we can refer to as “internal”. There is a theory that such proof-of-stake (PoS) constitutes a comparable alternative to proof-of-work (PoW) in terms of confirmation security. It is true that both PoS and PoW delegate control over transaction ordering to a person in control of the largest pool of certain capital.

The distinction is in the deployability of the capital. PoW excludes capital that cannot be converted to work, while PoS excludes all capital that cannot acquire units of the coin. This difference has a material consequence for security.

In Other Means Principle it is shown that censorship resistance depends on people paying miners to overpower the censor. Overcoming censorship is not possible in a PoS system, as the censor has acquired majority stake and cannot be unseated. As such PoS systems are not censorship-resistant and the theory is therefore invalid.