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From: Billy Tetrud <billy.tetrud@gmail.com>
Date: Sun, 23 May 2021 09:10:50 -1000
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To: Lloyd Fournier <lloyd.fourn@gmail.com>
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 SatoshiSingh <SatoshiSingh@protonmail.com>
Subject: Re: [bitcoin-dev] Opinion on proof of stake in future
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@Lloyd

>  Proof-of-SquareSpace

I agree with your points about delegated proof of stake. I wrote my own
critique about that
<https://github.com/fresheneesz/quantificationOfConsensusProtocolSecurity#a=
nalysis-of-delegated-proof-of-stake-dpos>
as
well. And your point, that other forms of PoS devolve to DPoS by virtue of
people wanting to actively mint blocks without exposing their coins in hot
wallets, is an interesting one.

> how are the users meant to redelegate their stake to honest pools?

This could be mitigated partially if delegation didn't require any kind of
blockchain transaction. For example, users could simply send a signed
message saying "this other key can mint blocks with my coins", and then
minting a block using those coins would require presenting the delegation
signature. This only partially mitigates the problem since the dishonest
pool would still be able to use those coins as well, so it would be a race
at that point. Still better than nothing. And pools could simply require
full custody of the coins.

From what you mentioned, it sounds like maybe Algorand does something
similar to this.

> I don't see a way to get around the conflicting requirement that the keys
for large amounts of coins should be kept offline but those are exactly the
coins we need online to make the scheme secure.

There are a couple solutions you didn't mention. One is your "traditional"
locked-stake kind of systems, where participants are required to lock their
stake for long periods of time. Since normal users aren't likely to want to
do this, it will likely be left to more sophisticated stakers likely
staking very large amounts.

Both mechanisms you mentioned allow delegation, and it might seem like
maybe there'd be a way to disallow delegation, however since users can
always give custody of their coins to trusted pools, that would be a
delgation mechanism of last resort that can't be removed. So you can do
things that make it hard (for both users and pool operators) to delegate
trustlessly, but you can't get rid of the ability to delgate entirely.

In general, the situations where I see people not pooling are:

A. They are entirely prevented by technical means. It seems reasonably
clear that this is impossible.
B. The downsides are more than unsophisticated users are willing to incur
(eg stake locking).
C. The rewards are so small that it isn't worth it for people to put in
much effort to gain them.
D. The rewards are so frequent that pooling is unnecessary.

B excludes a lot of people from being able to help secure the chain, but
this is not materially different from PoW mining in that regard. D is a bit
border line. With 1 billion people attempting to participate and 10 minute
blocks, 232 people would need to share the block reward in order to expect
a payout on average once per month. With 8 billion people that would turn
into more like 1700 people. This seems potentially doable (eg via cosigner
requirements on minted blocks), but it is a lot of participants per block.

I think options C and D combined would be an ideal approach here. Because
minting uses very few real resources, minting could be pretty much have
arbitrarily low ongoing costs. This means fees can be low and blocks can
have low payouts. If the reward was low and people could expect to see it
once every couple years, people could simply treat it like a lottery. Great
if they win it now, but nothing that anyone needs to rely on (which would
incentivize the pools to reduce variance that we want to avoid). If there
is no locked stake or other major barriers in place to minting blocks, that
would also help avoid the compultion to use a pool.

In any case, you bring up good points, and they certainly complicate the
issue. By the way, if you were confused as to what VPoS was in the section
from my above link, this might satisfy your curiosity
<https://github.com/fresheneesz/ValidatedProofOfStake>.

Cheers




On Sat, May 22, 2021 at 5:41 PM Lloyd Fournier <lloyd.fourn@gmail.com>
wrote:

> Hi Billy,
>
> I was going to write a post which started by dismissing many of the weak
> arguments that are made against PoS made in this thread and elsewhere.
> Although I don't agree with all your points you have done a decent job
> here so I'll focus on the second part: why I think Proof-of-Stake is
> inappropriate for a Bitcoin-like system.
>
> Proof of stake is not fit for purpose for a global settlement layer in a
> pure digital asset (i.e. "digital gold") which is what Bitcoin is trying =
to
> be.
> PoS necessarily gives responsibilities to the holders of coins that they
> do not want and cannot handle.
> In Bitcoin, large unsophisticated coin holders can put their coins in col=
d
> storage without a second thought given to the health of the underlying
> ledger.
> As much as hardcore Bitcoiners try to convince them to run their own node=
,
> most don't, and that's perfectly acceptable.
> At no point do their personal decisions affect the underlying consensus -=
-
> it only affects their personal security assurance (not that of the system
> itself).
> In PoS systems this clean separation of responsibilities does not exist.
>
> I think that the more rigorously studied PoS protocols will work fine
> within the security claims made in their papers.
> People who believe that these protocols are destined for catastrophic
> consensus failure are certainly in for a surprise.
> But the devil is in the detail.
> Let's look at what the implications of using the leading proof of stake
> protocols would have on Bitcoin:
>
> ### Proof of SquareSpace (Cardano, Polkdadot)
>
> Cardano is a UTXO based PoS coin based on Ouroboros Praos[3] with an
> inbuilt on-chain delegation system[5].
> In these protocols, coin holders who do not want to run their node with
> their hot keys in it delegate it to a "Stake Pool".
> I call the resulting system Proof-of-SquareSpace since most will choose a
> pool by looking around for one with a nice website and offering the large=
st
> share of the block reward.
> On the surface this might sound no different than someone with an mining
> rig shopping around for a good mining pool but there are crucial
> differences:
>
> 1. The person making the decision is forced into it just because they own
> the currency -- someone with a mining rig has purchased it with the inten=
t
> to make profit by participating in consensus.
>
> 2. When you join a mining pool your systems are very much still online.
> You are just partaking in a pool to reduce your profit variance. You stil=
l
> see every block that you help create and *you never help create a block
> without seeing it first*.
>
> 3. If by SquareSpace sybil attack you gain a dishonest majority and start
> censoring transactions how are the users meant to redelegate their stake =
to
> honest pools?
> I guess they can just send a transaction delegating to another pool...oh
> wait I guess that might be censored too! This seems really really bad.
> In Bitcoin, miners can just join a different pool at a whim. There is
> nothing the attacker can do to stop them. A temporary dishonest majority
> heals relatively well.
>
> There is another severe disadvantage to this on-chain delegation system:
> every UTXO must indicate which staking account this UTXO belongs to so th=
e
> appropriate share of block rewards can be transferred there.
> Being able to associate every UTXO to an account ruins one of the main
> privacy advantages of the UTXO model.
> It also grows the size of the blockchain significantly.
>
> ### "Pure" proof of stake (Algorand)
>
> Algorand's[4] approach is to only allow online stake to participate in th=
e
> protocol.
> Theoretically, This means that keys holding funds have to be online in
> order for them to author blocks when they are chosen.
> Of course in reality no one wants to keep their coin holding keys online
> so in Alogorand you can authorize a set of "participation keys"[1] that
> will be used to create blocks on your coin holding key's behalf.
> Hopefully you've spotted the problem.
> You can send your participation keys to any malicious party with a nice
> website (see random example [2]) offering you a good return.
> Damn it's still Proof-of-SquareSpace!
> The minor advantage is that at least the participation keys expire after =
a
> certain amount of time so eventually the SquareSpace attacker will lose
> their hold on consensus.
> Importantly there is also less junk on the blockchain because the
> participation keys are delegated off-chain and so are not making as much =
of
> a mess.
>
> ### Conclusion
>
> I don't see a way to get around the conflicting requirement that the keys
> for large amounts of coins should be kept offline but those are exactly t=
he
> coins we need online to make the scheme secure.
> If we allow delegation then we open up a new social attack surface and it
> degenerates to Proof-of-SquareSpace.
>
> For a "digital gold" like system like Bitcoin we optimize for simplicity
> and desperately want to avoid extraneous responsibilities for the holder =
of
> the coin.
> After all, gold is an inert element on the periodic table that doesn't
> confer responsibilities on the holder to maintain the quality of all the
> other bars of gold out there.
> Bitcoin feels like this too and in many ways is more inert and beautifull=
y
> boring than gold.
> For Bitcoin to succeed I think we need to keep it that way and
> Proof-of-Stake makes everything a bit too exciting.
>
> I suppose in the end the market will decide what is real digital gold and
> whether these bad technical trade offs are worth being able to say it use=
s
> less electricity. It goes without saying that making bad technical
> decisions to appease the current political climate is an anathema to
> Bitcoin.
>
> Would be interested to know if you or others think differently on these
> points.
>
> [1]:
> https://developer.algorand.org/docs/run-a-node/participate/generate_keys/
> [2]: https://staking.staked.us/algorand-staking
> [3]: https://eprint.iacr.org/2017/573.pdf
> [4]:
> https://algorandcom.cdn.prismic.io/algorandcom%2Fece77f38-75b3-44de-bc7f-=
805f0e53a8d9_theoretical.pdf
> [5]:
> https://hydra.iohk.io/build/790053/download/1/delegation_design_spec.pdf
>
> Cheers,
>
> LL
>
> On Fri, 21 May 2021 at 19:21, Billy Tetrud via bitcoin-dev <
> bitcoin-dev@lists.linuxfoundation.org> wrote:
>
>> I think there is a lot of misinformation and bias against Proof of Stake=
.
>> Yes there have been lots of shady coins that use insecure PoS mechanisms=
.
>> Yes there have been massive issues with distribution of PoS coins (of
>> course there have also been massive issues with PoW coins as well).
>> However, I want to remind everyone that there is a difference between
>> "proved to be impossible" and "have not achieved recognized success yet"=
.
>> Most of the arguments levied against PoS are out of date or rely on
>> unproven assumptions or extrapolation from the analysis of a particular =
PoS
>> system. I certainly don't think we should experiment with bitcoin by
>> switching to PoS, but from my research, it seems very likely that there =
is
>> a proof of stake consensus protocol we could build that has substantiall=
y
>> higher security (cost / capital required to execute an attack) while at =
the
>> same time costing far less resources (which do translate to fees on the
>> network) *without* compromising any of the critical security properties
>> bitcoin relies on. I think the critical piece of this is the disagreemen=
ts
>> around hardcoded checkpoints, which is a critical piece solving attacks
>> that could be levied on a PoS chain, and how that does (or doesn't) affe=
ct
>> the security model.
>>
>> @Eric Your proof of stake fallacy seems to be saying that PoS is worse
>> when a 51% attack happens. While I agree, I think that line of thinking
>> omits important facts:
>> * The capital required to 51% attack a PoS chain can be made
>> substantially greater than on a PoS chain.
>> * The capital the attacker stands to lose can be substantially greater a=
s
>> well if the attack is successful.
>> * The effectiveness of paying miners to raise the honest fraction of
>> miners above 50% may be quite bad.
>> * Allowing a 51% attack is already unacceptable. It should be considered
>> whether what happens in the case of a 51% may not be significantly
>> different. The currency would likely be critically damaged in a 51% atta=
ck
>> regardless of consensus mechanism.
>>
>> > Proof-of-stake tends towards oligopolistic control
>>
>> People repeat this often, but the facts support this. There is no
>> centralization pressure in any proof of stake mechanism that I'm aware o=
f.
>> IE if you have 10 times as much coin that you use to mint blocks, you
>> should expect to earn 10x as much minting revenue - not more than 10x. B=
y
>> contrast, proof of work does in fact have clear centralization pressure =
-
>> this is not disputed. Our goal in relation to that is to ensure that the
>> centralization pressure remains insignifiant. Proof of work also clearly
>> has a lot more barriers to entry than any proof of stake system does. Bo=
th
>> of these mean the tendency towards oligopolistic control is worse for Po=
W.
>>
>> > Energy usage, in-and-of-itself, is nothing to be ashamed of!!
>>
>> I certainly agree. Bitcoin's energy usage at the moment is I think quite
>> warranted. However, the question is: can we do substantially better. I
>> think if we can, we probably should... eventually.
>>
>> > Proof of Stake is only resilient to =E2=85=93 of the network demonstra=
ting a
>> Byzantine Fault, whilst Proof of Work is resilient up to the =C2=BD thre=
shold
>>
>> I see no mention of this in the pos.pdf
>> <https://download.wpsoftware.net/bitcoin/pos.pdf> you linked to. I'm not
>> aware of any proof that *all *PoS systems have a failure threshold of
>> 1/3. I know that staking systems like Casper do in fact have that 1/3
>> requirement. However there are PoS designs that should exceed that up to
>> nearly 50% as far as I'm aware. Proof of work is not in fact resilient u=
p
>> to the 1/2 threshold in the way you would think. IE, if 100% of miners a=
re
>> currently honest and have a collective 100 exahashes/s hashpower, an
>> attacker does not need to obtain 100 exahashes/s, but actually only need=
s
>> to accumulate 50 exahashes/s. This is because as the attacker accumulate=
s
>> hashpower, it drives honest miners out of the market as the difficulty
>> increases to beyond what is economically sustainable. Also, its been sho=
wn
>> that the best proof of work can do is require an attacker to obtain 33% =
of
>> the hashpower because of the selfish mining attack
>> <https://github.com/fresheneesz/quantificationOfConsensusProtocolSecurit=
y#the-selfish-economic-attack> discussed
>> in depth in this paper: https://arxiv.org/abs/1311.0243. Together, both
>> of these things reduce PoW's security by a factor of about 83% (1 -
>> 50%*33%).
>>
>>  > Proof of Stake requires other trade-offs which are incompatible with
>> Bitcoin's objective (to be a trustless digital cash) =E2=80=94 specifica=
lly the
>> famous "security vs. liveness" guarantee
>>
>> Do you have a good source that talks about why you think proof of stake
>> cannot be used for a trustless digital cash?
>>
>> > You cannot gain tokens without someone choosing to give up those coins
>> - a form of permission.
>>
>> This is not a practical constraint. Just like in mining, some nodes may
>> reject you, but there will likely be more that will accept you, some
>> sellers may reject you, but most would accept your money as payment for
>> bitcoins. I don't think requiring the "permission" of one of millions of
>> people in the market can be reasonably considered a "permissioned
>> currency".
>>
>> > 2. Proof of stake must have a trusted means of timestamping to regulat=
e
>> overproduction of blocks
>>
>> Both PoW and PoS could mine/mint blocks twice as fast if everyone agreed
>> to double their clock speeds. Both systems rely on an honest majority
>> sticking to standard time.
>>
>>
>> On Wed, May 19, 2021 at 5:32 AM Michael Dubrovsky via bitcoin-dev <
>> bitcoin-dev@lists.linuxfoundation.org> wrote:
>>
>>> Ah sorry, I didn't realize this was, in fact, a different thread! :)
>>>
>>> On Wed, May 19, 2021 at 10:07 AM Michael Dubrovsky <mike@powx.org>
>>> wrote:
>>>
>>>> Folks, I suggest we keep the discussion to PoW, oPoW, and the BIP
>>>> itself. PoS, VDFs, and so on are interesting but I guess there are oth=
er
>>>> threads going on these topics already where they would be relevant.
>>>>
>>>> Also, it's important to distinguish between oPoW and these other
>>>> "alternatives" to Hashcash. oPoW is a true Proof of Work that doesn't =
alter
>>>> the core game theory or security assumptions of Hashcash and actually
>>>> contains SHA (can be SHA3, SHA256, etc hash is interchangeable).
>>>>
>>>> Cheers,
>>>> Mike
>>>>
>>>> On Tue, May 18, 2021 at 4:55 PM Erik Aronesty via bitcoin-dev <
>>>> bitcoin-dev@lists.linuxfoundation.org> wrote:
>>>>
>>>>> 1. i never suggested vdf's to replace pow.
>>>>>
>>>>> 2. my suggestion was specifically *in the context of* a working
>>>>> proof-of-burn protocol
>>>>>
>>>>> - vdfs used only for timing (not block height)
>>>>> - blind-burned coins of a specific age used to replace proof of work
>>>>> - the required "work" per block would simply be a competition to
>>>>> acquire rewards, and so miners would have to burn coins, well in
>>>>> advance, and hope that their burned coins got rewarded in some far
>>>>> future
>>>>> - the point of burned coins is to mimic, in every meaningful way, the
>>>>> value gained from proof of work... without some of the security
>>>>> drawbacks
>>>>> - the miner risks losing all of his burned coins (like all miners ris=
k
>>>>> losing their work in each block)
>>>>> - new burns can't be used
>>>>> - old burns age out (like ASICs do)
>>>>> - other requirements on burns might be needed to properly mirror the
>>>>> properties of PoW and the incentives Bitcoin uses to mine honestly.
>>>>>
>>>>> 3. i do believe it is *possible* that a "burned coin + vdf system"
>>>>> might be more secure in the long run, and that if the entire space
>>>>> agreed that such an endeavor was worthwhile, a test net could be spun
>>>>> up, and a hard-fork could be initiated.
>>>>>
>>>>> 4. i would never suggest such a thing unless i believed it was
>>>>> possible that consensus was possible.  so no, this is not an "alt
>>>>> coin"
>>>>>
>>>>> On Tue, May 18, 2021 at 10:02 AM Zac Greenwood <zachgrw@gmail.com>
>>>>> wrote:
>>>>> >
>>>>> > Hi ZmnSCPxj,
>>>>> >
>>>>> > Please note that I am not suggesting VDFs as a means to save energy=
,
>>>>> but solely as a means to make the time between blocks more constant.
>>>>> >
>>>>> > Zac
>>>>> >
>>>>> >
>>>>> > On Tue, 18 May 2021 at 12:42, ZmnSCPxj <ZmnSCPxj@protonmail.com>
>>>>> wrote:
>>>>> >>
>>>>> >> Good morning Zac,
>>>>> >>
>>>>> >> > VDFs might enable more constant block times, for instance by
>>>>> having a two-step PoW:
>>>>> >> >
>>>>> >> > 1. Use a VDF that takes say 9 minutes to resolve (VDF being
>>>>> subject to difficulty adjustments similar to the as-is). As per the
>>>>> property of VDFs, miners are able show proof of work.
>>>>> >> >
>>>>> >> > 2. Use current PoW mechanism with lower difficulty so finding a
>>>>> block takes 1 minute on average, again subject to as-is difficulty
>>>>> adjustments.
>>>>> >> >
>>>>> >> > As a result, variation in block times will be greatly reduced.
>>>>> >>
>>>>> >> As I understand it, another weakness of VDFs is that they are not
>>>>> inherently progress-free (their sequential nature prevents that; they=
 are
>>>>> inherently progress-requiring).
>>>>> >>
>>>>> >> Thus, a miner which focuses on improving the amount of energy that
>>>>> it can pump into the VDF circuitry (by overclocking and freezing the
>>>>> circuitry), could potentially get into a winner-takes-all situation,
>>>>> possibly leading to even *worse* competition and even *more* energy
>>>>> consumption.
>>>>> >> After all, if you can start mining 0.1s faster than the
>>>>> competition, that is a 0.1s advantage where *only you* can mine *in t=
he
>>>>> entire world*.
>>>>> >>
>>>>> >> Regards,
>>>>> >> ZmnSCPxj
>>>>> _______________________________________________
>>>>> bitcoin-dev mailing list
>>>>> bitcoin-dev@lists.linuxfoundation.org
>>>>> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>>>>>
>>>>
>>>>
>>>> --
>>>> Michael Dubrovsky
>>>> Founder; PoWx
>>>> www.PoWx.org <http://www.powx.org/>
>>>>
>>>
>>>
>>> --
>>> Michael Dubrovsky
>>> Founder; PoWx
>>> www.PoWx.org <http://www.powx.org/>
>>> _______________________________________________
>>> bitcoin-dev mailing list
>>> bitcoin-dev@lists.linuxfoundation.org
>>> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>>>
>> _______________________________________________
>> bitcoin-dev mailing list
>> bitcoin-dev@lists.linuxfoundation.org
>> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>>
>

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<div dir=3D"ltr"><div>@Lloyd</div><div><br></div>&gt;=C2=A0

Proof-of-SquareSpace<div><br></div><div>I agree with your points about dele=
gated proof of stake. I wrote <a href=3D"https://github.com/fresheneesz/qua=
ntificationOfConsensusProtocolSecurity#analysis-of-delegated-proof-of-stake=
-dpos">my own critique about that</a>=C2=A0as well. And your point, that ot=
her forms of PoS devolve to DPoS by virtue of people wanting to actively mi=
nt blocks without exposing their coins in hot wallets, is an interesting on=
e.=C2=A0</div><div><br></div><div>&gt; how are the users meant to redelegat=
e their stake to honest pools?<br></div><div><br></div><div>This could be m=
itigated partially if delegation=C2=A0didn&#39;t require any kind of blockc=
hain transaction. For example, users could simply send a signed message say=
ing &quot;this other key can mint blocks with my coins&quot;, and then mint=
ing a block using those coins would require presenting the delegation signa=
ture. This only partially mitigates the problem since the dishonest pool wo=
uld still be able to use those coins as well, so it would be a race at that=
 point. Still better than nothing. And pools could simply require full cust=
ody of the coins.</div><div><br></div><div>From what you mentioned, it soun=
ds like maybe Algorand does something similar to this.=C2=A0</div><div><br>=
</div><div>&gt; I don&#39;t see a way to get around the conflicting require=
ment that the keys for large amounts of coins should be kept offline but th=
ose are exactly the coins we need online to make the scheme secure.</div><d=
iv><br></div><div>There are a couple solutions you didn&#39;t mention. One =
is your &quot;traditional&quot; locked-stake kind of systems, where partici=
pants are required to lock their stake for long periods of time. Since norm=
al users aren&#39;t likely to want to do this, it will likely be left to mo=
re sophisticated stakers likely staking very large amounts.=C2=A0</div><div=
><br></div><div>Both mechanisms you mentioned allow delegation, and it migh=
t seem like maybe there&#39;d be a way to disallow delegation, however sinc=
e users can always give custody of their coins to trusted pools, that would=
 be a delgation mechanism of last resort that can&#39;t be removed. So you =
can do things that make it hard (for both users and pool operators) to dele=
gate trustlessly, but you can&#39;t get rid of the ability to delgate entir=
ely.</div><div><br></div><div>In general, the situations where I see people=
 not pooling are:</div><div><br></div><div>A. They are entirely prevented b=
y technical means. It seems reasonably clear that this is impossible.</div>=
<div>B. The downsides are more than unsophisticated users are willing to in=
cur (eg stake locking).</div><div>C. The rewards are so small that it isn&#=
39;t worth it for people to put in much effort to gain them.</div><div>D. T=
he rewards are so frequent that pooling is unnecessary.</div><div><br></div=
><div>B excludes a lot of people from being able to help secure the chain, =
but this is not materially different from PoW mining in that regard. D is a=
 bit border line. With 1 billion people attempting to participate and 10 mi=
nute blocks, 232 people would need to share the block reward in order to ex=
pect a payout on average once per month. With 8 billion people that would t=
urn into more like 1700 people. This seems potentially doable (eg via cosig=
ner requirements on minted blocks), but it is a lot of participants per blo=
ck.=C2=A0</div><div><br></div><div>I think options C and D combined would b=
e an ideal approach here. Because minting uses very few real resources, min=
ting could be pretty much have arbitrarily low ongoing costs. This means fe=
es can be low and blocks can have low payouts. If the reward was low and pe=
ople could expect to see it once every couple years, people could simply tr=
eat it like a lottery. Great if they win it now, but nothing that anyone ne=
eds to rely on (which would incentivize the pools to reduce variance that w=
e want to avoid). If there is no locked stake or other major barriers in pl=
ace to minting blocks, that would also help avoid the compultion to use a p=
ool.</div><div><br></div><div>In any case, you bring up good points, and th=
ey certainly complicate the issue. By the way, if you were confused as to w=
hat VPoS was in the section from my above link, <a href=3D"https://github.c=
om/fresheneesz/ValidatedProofOfStake">this might satisfy your curiosity</a>=
.</div><div><br></div><div>Cheers</div><div><br></div><div><br></div><div><=
br></div></div><br><div class=3D"gmail_quote"><div dir=3D"ltr" class=3D"gma=
il_attr">On Sat, May 22, 2021 at 5:41 PM Lloyd Fournier &lt;<a href=3D"mail=
to:lloyd.fourn@gmail.com">lloyd.fourn@gmail.com</a>&gt; wrote:<br></div><bl=
ockquote class=3D"gmail_quote" style=3D"margin:0px 0px 0px 0.8ex;border-lef=
t:1px solid rgb(204,204,204);padding-left:1ex"><div dir=3D"ltr"><div>Hi Bil=
ly,</div><br>I was going to write a post which started by dismissing many o=
f the weak arguments that are made against PoS made in this thread and else=
where.<br>Although I don&#39;t agree with all your points you have done a d=
ecent job here so I&#39;ll focus on the second part: why I think Proof-of-S=
take is inappropriate for a Bitcoin-like system.<br><br>Proof of stake is n=
ot fit for purpose for a global settlement layer in a pure digital asset (i=
.e. &quot;digital gold&quot;) which is what Bitcoin is trying to be.<br>PoS=
 necessarily gives responsibilities to the holders of coins that they do no=
t want and cannot handle.<br>In Bitcoin, large unsophisticated coin holders=
 can put their coins in cold storage without a second thought given to the =
health of the underlying ledger.<br>As much as hardcore Bitcoiners try to c=
onvince them to run their own node, most don&#39;t, and that&#39;s perfectl=
y acceptable.<br>At no point do their personal decisions affect the underly=
ing consensus -- it only affects their personal security assurance (not tha=
t of the system itself).<br>In PoS systems this clean separation of respons=
ibilities does not exist.<br><div><br></div><div>I think that the more rigo=
rously studied PoS protocols will work fine within the security claims made=
 in their papers.</div><div>People who believe that these protocols are des=
tined for catastrophic consensus failure are certainly in for a surprise.</=
div><div>But the devil is in the detail.<br></div>Let&#39;s look at what th=
e implications of using the leading proof of stake protocols would have on =
Bitcoin:<br><br>### Proof of SquareSpace (Cardano, Polkdadot)<br><br>Cardan=
o is a UTXO based PoS coin based on Ouroboros Praos[3] with an inbuilt on-c=
hain delegation system[5].<br>In these protocols, coin holders who do not w=
ant to run their node with their hot keys in it delegate it to a &quot;Stak=
e Pool&quot;.<br>I call the resulting system Proof-of-SquareSpace since mos=
t will choose a pool by looking around for one with a nice website and offe=
ring the largest share of the block reward.<br>On the surface this might so=
und no different than someone with an mining rig shopping around for a good=
 mining pool but there are crucial differences:<br><br>1. The person making=
 the decision is forced into it just because they own the currency -- someo=
ne with a mining rig has purchased it with the intent to make profit by par=
ticipating in consensus.<br><br>2. When you join a mining pool your systems=
 are very much still online. You are just partaking in a pool to reduce you=
r profit variance. You still see every block that you help create and *you =
never help create a block without seeing it first*.<br><br>3. If by SquareS=
pace sybil attack you gain a dishonest majority and start censoring transac=
tions how are the users meant to redelegate their stake to honest pools?<br=
>I guess they can just send a transaction delegating to another pool...oh w=
ait I guess that might be censored too! This seems really really bad.<br>In=
 Bitcoin, miners can just join a different pool at a whim. There is nothing=
 the attacker can do to stop them. A temporary dishonest majority heals rel=
atively well.<br><br>There is another severe disadvantage to this on-chain =
delegation system: every UTXO must indicate which staking account this UTXO=
 belongs to so the appropriate share of block rewards can be transferred th=
ere.<br>Being able to associate every UTXO to an account ruins one of the m=
ain privacy advantages of the UTXO model.<br>It also grows the size of the =
blockchain significantly.<br><br>### &quot;Pure&quot; proof of stake (Algor=
and)<br><br>Algorand&#39;s[4] approach is to only allow online stake to par=
ticipate in the protocol.<br>Theoretically, This means that keys holding fu=
nds have to be online in order for them to author blocks when they are chos=
en.<br>Of course in reality no one wants to keep their coin holding keys on=
line so in Alogorand you can authorize a set of &quot;participation keys&qu=
ot;[1] that will be used to create blocks on your coin holding key&#39;s be=
half.<br>Hopefully you&#39;ve spotted the problem.<br>You can send your par=
ticipation keys to any malicious party with a nice website (see random exam=
ple [2]) offering you a good return.<br>Damn it&#39;s still Proof-of-Square=
Space!<br>The minor advantage is that at least the participation keys expir=
e after a certain amount of time so eventually the SquareSpace attacker wil=
l lose their hold on consensus.<br>Importantly there is also less junk on t=
he blockchain because the participation keys are delegated off-chain and so=
 are not making as much of a mess.<br><br>### Conclusion<br><br>I don&#39;t=
 see a way to get around the conflicting requirement that the keys for larg=
e amounts of coins should be kept offline but those are exactly the coins w=
e need online to make the scheme secure.<br><div>If we allow delegation the=
n we open up a new social attack surface and it degenerates to Proof-of-Squ=
areSpace.</div><div><br></div>For a &quot;digital gold&quot; like system li=
ke Bitcoin we optimize for simplicity and desperately want to avoid extrane=
ous responsibilities for the holder of the coin.<br>After all, gold is an i=
nert element on the periodic table that doesn&#39;t confer responsibilities=
 on the holder to maintain the quality of all the other bars of gold out th=
ere.<br>Bitcoin feels like this too and in many ways is more inert and beau=
tifully boring than gold.<br><div>For Bitcoin to succeed I think we need to=
 keep it that way and Proof-of-Stake makes everything a bit too exciting.</=
div><div><br></div><div>I suppose in the end the market will decide what is=
 real digital gold and whether these bad technical trade offs are worth bei=
ng able to say it uses less electricity. It goes without saying that making=
 bad technical decisions to appease the current political climate is an ana=
thema to Bitcoin.<br></div><div><br></div><div>Would be interested to know =
if you or others think differently on these points.<br></div><br>[1]: <a hr=
ef=3D"https://developer.algorand.org/docs/run-a-node/participate/generate_k=
eys/" target=3D"_blank">https://developer.algorand.org/docs/run-a-node/part=
icipate/generate_keys/</a><br>[2]: <a href=3D"https://staking.staked.us/alg=
orand-staking" target=3D"_blank">https://staking.staked.us/algorand-staking=
</a><br>[3]: <a href=3D"https://eprint.iacr.org/2017/573.pdf" target=3D"_bl=
ank">https://eprint.iacr.org/2017/573.pdf</a><br>[4]: <a href=3D"https://al=
gorandcom.cdn.prismic.io/algorandcom%2Fece77f38-75b3-44de-bc7f-805f0e53a8d9=
_theoretical.pdf" target=3D"_blank">https://algorandcom.cdn.prismic.io/algo=
randcom%2Fece77f38-75b3-44de-bc7f-805f0e53a8d9_theoretical.pdf</a><br><div>=
[5]: <a href=3D"https://hydra.iohk.io/build/790053/download/1/delegation_de=
sign_spec.pdf" target=3D"_blank">https://hydra.iohk.io/build/790053/downloa=
d/1/delegation_design_spec.pdf</a></div><div><br></div><div>Cheers,<br></di=
v><br>LL<br></div><br><div class=3D"gmail_quote"><div dir=3D"ltr" class=3D"=
gmail_attr">On Fri, 21 May 2021 at 19:21, Billy Tetrud via bitcoin-dev &lt;=
<a href=3D"mailto:bitcoin-dev@lists.linuxfoundation.org" target=3D"_blank">=
bitcoin-dev@lists.linuxfoundation.org</a>&gt; wrote:<br></div><blockquote c=
lass=3D"gmail_quote" style=3D"margin:0px 0px 0px 0.8ex;border-left:1px soli=
d rgb(204,204,204);padding-left:1ex"><div dir=3D"ltr"><div>I think there is=
 a lot of misinformation and bias against Proof of Stake. Yes there have be=
en lots of shady coins that use insecure PoS mechanisms. Yes there have bee=
n massive issues with distribution of PoS coins (of course there have also =
been massive issues with PoW coins as well). However, I want to remind ever=
yone that there is a difference between &quot;proved to be impossible&quot;=
 and &quot;have not achieved recognized success yet&quot;. Most of the argu=
ments levied against PoS are out of date or rely on unproven assumptions or=
 extrapolation from the analysis of a particular PoS system. I certainly do=
n&#39;t think we should experiment with bitcoin by switching to PoS, but fr=
om my research, it seems very likely that there is a proof of stake consens=
us protocol we could build that has substantially higher security (cost / c=
apital required to execute an attack) while at the same time costing far le=
ss resources (which do translate to fees on the network) *without* compromi=
sing any of the critical security properties bitcoin relies on. I think the=
 critical piece of this is the disagreements around hardcoded checkpoints, =
which is a critical piece solving=C2=A0attacks that=C2=A0could be levied on=
 a PoS chain, and how that does (or doesn&#39;t) affect the security model.=
=C2=A0</div><div><br></div>@Eric Your proof of stake fallacy seems to be sa=
ying that PoS is worse when a 51% attack happens. While I agree, I think th=
at line of thinking omits important facts:<br>* The capital=C2=A0required t=
o 51% attack a PoS chain can be made substantially greater than on a PoS ch=
ain.=C2=A0<div>* The capital the attacker stands to lose can be substantial=
ly greater as well if the attack is successful.<br><div>* The effectiveness=
 of paying miners to raise the honest fraction of miners above 50% may be q=
uite bad.</div><div>* Allowing a 51% attack is already unacceptable. It sho=
uld be considered whether what happens in the case of a 51% may not be sign=
ificantly different. The currency would likely be critically damaged in a 5=
1% attack regardless of consensus mechanism.</div><div><br></div><div>&gt;=
=C2=A0<span style=3D"color:rgb(0,0,0);font-family:arial,helvetica,sans-seri=
f">Proof-of-stake tends towards oligopolistic control</span></div><div><spa=
n style=3D"color:rgb(0,0,0);font-family:arial,helvetica,sans-serif"><br></s=
pan></div><div><span style=3D"color:rgb(0,0,0);font-family:arial,helvetica,=
sans-serif">People repeat this often, but the facts support this. There is =
no centralization pressure in any proof of stake mechanism that I&#39;m awa=
re of. IE if you have 10 times as much coin that you use to mint blocks, yo=
u should expect to earn 10x as much minting revenue - not more than 10x. By=
 contrast, proof of work does in fact have clear centralization pressure - =
this is not disputed. Our goal in relation to that is to ensure that the ce=
ntralization pressure remains insignifiant. Proof of work also clearly has =
a lot more barriers to entry than any proof of stake system does. Both of t=
hese mean the tendency towards oligopolistic control is worse for PoW.</spa=
n></div><div><span style=3D"color:rgb(0,0,0);font-family:arial,helvetica,sa=
ns-serif"><br></span></div><div><span style=3D"color:rgb(0,0,0);font-family=
:arial,helvetica,sans-serif">&gt;=C2=A0</span>Energy usage, in-and-of-itsel=
f, is nothing to be ashamed of!!</div><div><br></div><div>I certainly agree=
. Bitcoin&#39;s=C2=A0energy usage at the moment is I think quite warranted.=
 However, the question is: can we do substantially better. I think if we ca=
n, we probably should... eventually.</div><div><div><br></div><div>&gt; Pro=
of of Stake is only resilient to=C2=A0=E2=85=93 of the network demonstratin=
g a Byzantine Fault, whilst Proof of Work is resilient up to the=C2=A0=C2=
=BD threshold</div><div><br></div><div>I see no mention of this in the=C2=
=A0<a href=3D"https://download.wpsoftware.net/bitcoin/pos.pdf" target=3D"_b=
lank">pos.pdf</a>=C2=A0you linked to. I&#39;m not aware of any proof that <=
b>all </b>PoS systems have a failure threshold of 1/3. I know that staking =
systems like Casper do in fact have that 1/3 requirement. However there are=
 PoS designs that should exceed that up to nearly 50% as far as I&#39;m awa=
re. Proof of work is not in fact resilient up to the 1/2 threshold in the w=
ay you would think. IE, if 100% of miners are currently honest and have a c=
ollective 100 exahashes/s hashpower, an attacker does not need to obtain 10=
0 exahashes/s, but actually only needs to accumulate 50 exahashes/s. This i=
s because as the attacker accumulates hashpower, it drives honest miners ou=
t of the market as the difficulty increases to beyond what is economically =
sustainable. Also, its been shown that the best proof of work can do is req=
uire an attacker to obtain 33% of the hashpower because of the <a href=3D"h=
ttps://github.com/fresheneesz/quantificationOfConsensusProtocolSecurity#the=
-selfish-economic-attack" target=3D"_blank">selfish mining attack</a>=C2=A0=
discussed in depth in this paper: <a href=3D"https://arxiv.org/abs/1311.024=
3" target=3D"_blank">https://arxiv.org/abs/1311.0243</a>. Together, both of=
 these things reduce PoW&#39;s security by a factor of about 83% (1 - 50%*3=
3%).</div><div><br></div><div>=C2=A0&gt; Proof of Stake requires other trad=
e-offs which are incompatible with Bitcoin&#39;s objective (to be a trustle=
ss digital cash) =E2=80=94 specifically the famous &quot;security vs. liven=
ess&quot; guarantee</div><div><br></div><div>Do you have a good source that=
 talks about why you think proof of stake cannot be used for a trustless di=
gital cash?=C2=A0</div><div><br></div><div>&gt; You cannot gain tokens with=
out someone choosing to give up those coins - a form of permission.</div><d=
iv><br></div><div>This is not a practical constraint. Just like in mining, =
some nodes may reject you, but there will likely be more that will accept y=
ou, some sellers may reject you, but most would accept your money as paymen=
t for bitcoins. I don&#39;t think requiring the &quot;permission&quot; of o=
ne of millions of people in the market can be reasonably considered a &quot=
;permissioned currency&quot;.=C2=A0=C2=A0</div><div><br></div></div><div>&g=
t; 2. Proof of stake must have a trusted means of timestamping to regulate =
overproduction of blocks</div><div><br></div><div>Both PoW and PoS could mi=
ne/mint blocks twice as fast if everyone agreed to double their clock speed=
s. Both systems rely on an honest majority sticking to standard time.=C2=A0=
=C2=A0</div><div><br></div></div></div><br><div class=3D"gmail_quote"><div =
dir=3D"ltr" class=3D"gmail_attr">On Wed, May 19, 2021 at 5:32 AM Michael Du=
brovsky via bitcoin-dev &lt;<a href=3D"mailto:bitcoin-dev@lists.linuxfounda=
tion.org" target=3D"_blank">bitcoin-dev@lists.linuxfoundation.org</a>&gt; w=
rote:<br></div><blockquote class=3D"gmail_quote" style=3D"margin:0px 0px 0p=
x 0.8ex;border-left:1px solid rgb(204,204,204);padding-left:1ex"><div dir=
=3D"ltr">Ah sorry, I didn&#39;t realize this was, in fact, a different thre=
ad! :)</div><br><div class=3D"gmail_quote"><div dir=3D"ltr" class=3D"gmail_=
attr">On Wed, May 19, 2021 at 10:07 AM Michael Dubrovsky &lt;<a href=3D"mai=
lto:mike@powx.org" target=3D"_blank">mike@powx.org</a>&gt; wrote:<br></div>=
<blockquote class=3D"gmail_quote" style=3D"margin:0px 0px 0px 0.8ex;border-=
left:1px solid rgb(204,204,204);padding-left:1ex"><div dir=3D"ltr">Folks, I=
 suggest we keep the discussion to PoW, oPoW, and the BIP itself. PoS, VDFs=
, and so on are interesting but I guess there are other threads going on th=
ese topics already where they would be relevant.=C2=A0<div><br></div><div>A=
lso, it&#39;s important=C2=A0to distinguish between oPoW and these other &q=
uot;alternatives&quot; to Hashcash. oPoW is a true Proof of Work that doesn=
&#39;t alter the core game theory or security assumptions of Hashcash and a=
ctually contains SHA (can be SHA3, SHA256, etc hash is interchangeable).</d=
iv><div><br></div><div>Cheers,</div><div>Mike=C2=A0</div></div><br><div cla=
ss=3D"gmail_quote"><div dir=3D"ltr" class=3D"gmail_attr">On Tue, May 18, 20=
21 at 4:55 PM Erik Aronesty via bitcoin-dev &lt;<a href=3D"mailto:bitcoin-d=
ev@lists.linuxfoundation.org" target=3D"_blank">bitcoin-dev@lists.linuxfoun=
dation.org</a>&gt; wrote:<br></div><blockquote class=3D"gmail_quote" style=
=3D"margin:0px 0px 0px 0.8ex;border-left:1px solid rgb(204,204,204);padding=
-left:1ex">1. i never suggested vdf&#39;s to replace pow.<br>
<br>
2. my suggestion was specifically *in the context of* a working<br>
proof-of-burn protocol<br>
<br>
- vdfs used only for timing (not block height)<br>
- blind-burned coins of a specific age used to replace proof of work<br>
- the required &quot;work&quot; per block would simply be a competition to<=
br>
acquire rewards, and so miners would have to burn coins, well in<br>
advance, and hope that their burned coins got rewarded in some far<br>
future<br>
- the point of burned coins is to mimic, in every meaningful way, the<br>
value gained from proof of work... without some of the security<br>
drawbacks<br>
- the miner risks losing all of his burned coins (like all miners risk<br>
losing their work in each block)<br>
- new burns can&#39;t be used<br>
- old burns age out (like ASICs do)<br>
- other requirements on burns might be needed to properly mirror the<br>
properties of PoW and the incentives Bitcoin uses to mine honestly.<br>
<br>
3. i do believe it is *possible* that a &quot;burned coin + vdf system&quot=
;<br>
might be more secure in the long run, and that if the entire space<br>
agreed that such an endeavor was worthwhile, a test net could be spun<br>
up, and a hard-fork could be initiated.<br>
<br>
4. i would never suggest such a thing unless i believed it was<br>
possible that consensus was possible.=C2=A0 so no, this is not an &quot;alt=
<br>
coin&quot;<br>
<br>
On Tue, May 18, 2021 at 10:02 AM Zac Greenwood &lt;<a href=3D"mailto:zachgr=
w@gmail.com" target=3D"_blank">zachgrw@gmail.com</a>&gt; wrote:<br>
&gt;<br>
&gt; Hi ZmnSCPxj,<br>
&gt;<br>
&gt; Please note that I am not suggesting VDFs as a means to save energy, b=
ut solely as a means to make the time between blocks more constant.<br>
&gt;<br>
&gt; Zac<br>
&gt;<br>
&gt;<br>
&gt; On Tue, 18 May 2021 at 12:42, ZmnSCPxj &lt;<a href=3D"mailto:ZmnSCPxj@=
protonmail.com" target=3D"_blank">ZmnSCPxj@protonmail.com</a>&gt; wrote:<br=
>
&gt;&gt;<br>
&gt;&gt; Good morning Zac,<br>
&gt;&gt;<br>
&gt;&gt; &gt; VDFs might enable more constant block times, for instance by =
having a two-step PoW:<br>
&gt;&gt; &gt;<br>
&gt;&gt; &gt; 1. Use a VDF that takes say 9 minutes to resolve (VDF being s=
ubject to difficulty adjustments similar to the as-is). As per the property=
 of VDFs, miners are able show proof of work.<br>
&gt;&gt; &gt;<br>
&gt;&gt; &gt; 2. Use current PoW mechanism with lower difficulty so finding=
 a block takes 1 minute on average, again subject to as-is difficulty adjus=
tments.<br>
&gt;&gt; &gt;<br>
&gt;&gt; &gt; As a result, variation in block times will be greatly reduced=
.<br>
&gt;&gt;<br>
&gt;&gt; As I understand it, another weakness of VDFs is that they are not =
inherently progress-free (their sequential nature prevents that; they are i=
nherently progress-requiring).<br>
&gt;&gt;<br>
&gt;&gt; Thus, a miner which focuses on improving the amount of energy that=
 it can pump into the VDF circuitry (by overclocking and freezing the circu=
itry), could potentially get into a winner-takes-all situation, possibly le=
ading to even *worse* competition and even *more* energy consumption.<br>
&gt;&gt; After all, if you can start mining 0.1s faster than the competitio=
n, that is a 0.1s advantage where *only you* can mine *in the entire world*=
.<br>
&gt;&gt;<br>
&gt;&gt; Regards,<br>
&gt;&gt; ZmnSCPxj<br>
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</blockquote></div><br clear=3D"all"><div><br></div>-- <br><div dir=3D"ltr"=
><div dir=3D"ltr"><div><div dir=3D"ltr"><div style=3D"font-size:small">Mich=
ael Dubrovsky<br></div><div style=3D"font-size:small">Founder; PoWx</div><d=
iv style=3D"font-size:small"><a href=3D"http://www.powx.org/" style=3D"colo=
r:rgb(17,85,204)" target=3D"_blank">www.PoWx.org</a></div></div></div></div=
></div>
</blockquote></div><br clear=3D"all"><div><br></div>-- <br><div dir=3D"ltr"=
><div dir=3D"ltr"><div><div dir=3D"ltr"><div style=3D"font-size:small">Mich=
ael Dubrovsky<br></div><div style=3D"font-size:small">Founder; PoWx</div><d=
iv style=3D"font-size:small"><a href=3D"http://www.powx.org/" style=3D"colo=
r:rgb(17,85,204)" target=3D"_blank">www.PoWx.org</a></div></div></div></div=
></div>
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</blockquote></div>
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