This is an opinion editorial by Mickey Koss, a West Point graduate with an economics degree. He spent four years in the infantry before transferring to the Finance Corps.
Ethereum founder Vitalik Buterin recently expressed concern about the long-term security of Bitcoins citing relative security budgets based on network fee structures.
These concerns are unfounded and are structured in a false comparison between the two systems. Here’s why:
First, Ethereum’s proof-of-stake hardware and monetary requirements encourage the centralization of stake in service providers such as large exchanges. Outsourcing carries a multitude of risks to include the co-optation of the network at the stroke of a pen by the jurisdictional government in which these entities exist.
Furthermore, in a world of unlimited fiat currencies, central banks and governments could also quietly build up a fund of ethereum and slowly stake their claim to full and legitimate control of the network. Security budgets consisting only of monetary constraints are unimportant in a world without physical scarcity.
Bitcoin is fundamentally different. Mining requires inputs of hardware and energy, both of which are inherently scarce to begin with. Co-opting a network of scarce technology and energy inputs makes the task infinitely more difficult to accomplish, especially in a covert manner.
In addition to this, the proponents of this particular line of FUD completely ignore the positive externalities offered by on-demand energy demand or bitcoin mining. I have already written about this extensively in previous articles such as “Who says Bitcoin mining has to be profitable”. TLDR: Bitcoin mining doesn’t have to be profitable in the traditional sense because of the incentives that different use cases produce; sometimes anything is better than nothing, especially if your energy was going to be wasted.
All in all, these concerns to me show a lack of creativity and foresight that is indicative of a status quo or fiat mindset. The proof of work is innovation; Power consumption is not just a feature, but an incentive, not a flaw in the system. The integration of proof-of-work technology and the energy industry is a natural fit and will only spur more adoption and more abundance for a better future for humanity.
I believe that the widely touted 99% reduction in energy consumption that ETH will experience will ultimately lead to its demise. The work test maintains links with the real world where incentives are stronger than coercion. Proof-of-stake chooses to cut these ties and incentivizes nothing more than HODLing.
Energy innovation and integration will outperform the competition and incentivize long-term counterparty risk-free performance. The need for innovation in the energy sector is becoming more evident every day. Bitcoin and proof of work will inevitably shine in the coming years, helping to bring cheap and abundant energy to the masses. Little by little, then suddenly; a low time preference is all that is required.
This is a guest post by Mickey Koss. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
