The following is background information required for a forthcoming governance proposal. I drafted it earlier—it’s a rough draft, and the proposal is still not done due to competing priorities. Discussion of the following is beyond the scope of the proposal itself, anyway; so this belongs in a general thread.
POS is not decentralized. It never is. It is only a thin veneer of something that looks like sort of a little bit like “decentralization”, so that hype-mongers can sell you some Blockchain Magic Pixie Dust and pump their shitcoins.
In my very first post here, which was strongly pro-Terra, I mentioned offhand that I am “anti-POS”; and I rationalized accepting it here. This now is not me changing my opinion: This is my correcting away the foolish rationalizations, and strengthening my prior opinion.
Decentralized networks do not have special “validators” with special status requiring high capital. On truly decentralized networks, anyone can run a validator. In Bitcoin, for example, anyone can run a validator at home. It has no significant cost; you don’t even need to own any BTC.
You can and should run your own Bitcoin validator. It will confirm for you the proper operation of the Bitcoin network block by block, tx by tx. You should not place unlimited trust in centralized RPC and centralized block explorers: They can lie to you. And nobody can override your validator’s decisions about what is and is not valid. There is no voting—there is only consensus, absolute agreement based on well-known rules.
“But what about the miners?” In Bitcoin, miners have limited power. They must follow the consensus validation rules, just like everyone else—and everyone else collectively enforces the rules on the miners. They only decide the ordering of consensus-valid transactions; that is their only power. Understanding this requires a deep technical grasp of the Nakamoto Consensus. Most people lack that understanding, so misinformation about this tends to proliferate.
This is no mere theory. It has been proved in practice.
Everyone who’s not new to crypto will remember the day in November 2017 when hostile miners tried to flip the network. Bcash had already hardforked in August 2017. It was backed by large, highly-capitalized miners with a fantastic amount of hashpower. They wanted to force everyone to dump BTC, and switch to BCH. Most of all, they wanted to kill off the old mainnet—take away its hashpower so that it would grind to a halt, and nobody would be able to transact BTC anymore.
Bitcoin suffered moderately degraded performance for a few hours. That’s all that the hostile miners achieved. Then, they needed to switch back at least part of their hashpower to Bitcoin: BTC had a much higher price than BCH. Miners need to to pay their electricity bills, and ROI their hardware.
Miners run on razor-thin profit margins, with high upfront capital investments and high ongoing expenses. Even the biggest miners could bankrupt themselves attacking Bitcoin—and Bitcoin would still keep going, because other miners would take the opportunity to make more money. Mining is hypercompetitive. Miners who attack Bitcoin are leaving money on the table for miners who don’t.
I was there. I watched events play out step by step, empirically confirming what theory predicted. If you weren’t there, then you are quite new in this space; and you may be more susceptible to falling for the false promises of POS.
So much for miners. They do not have the special authority in Bitcoin that “validators” have here. In Bitcoin, a “validator” is something that you can run on a Raspberry Pi, on a home Internet connection. Many people do exactly that. Their tiny, low-cost validators are equal in status to every other validator. And your wallet balance is irrelevant. (And your money is never locked up. Although the economic fallacies of POS lock-ups are beyond the scope of this post, you should observe, by the way, that the coin with no lock-up is the dominant digital gold-standard coin with the highest value, highest market cap, and overall best long-term performance. All BTC are unlocked and freely floating! Stop, just stop pretending that you can make coins more valuable by tricking people into locking them up.)
That is called decentralization.
All of your POS coins with staked “validators” are not decentralized. They are, in essence, federated authority networks—with larger or smaller, more or less centrally clustered federations of authorities. I know of coins with multi-billion-dollar market caps where fewer than 100 people own more than half the stake, and they run most of the validators—which take delegation of everyone else’s stake, too. They are all part of the same closed TG group; no one even knows about that TG group without insider information, and it functions as a hidden government for their chain. They call themselves “decentralized”, too. And here? I can see here that Do Kwon/TFL are essentially central authorities commanding the Terra network, under a pretextual “governance” rubric.
POS is only a way for insiders, incumbents, and early entrants to control the network, while they sprinkle on some “blockchain” hype to sell you, the bagholder, a lie about fake “decentralization”.
We are seeing the result of that right here.