This is an opinion piece by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the infantry before moving to the Finance Corps.
Ethereum founder Vitalik Buterin recently expressed concerns about Bitcoin’s long-term security, citing relative security budgets based on network fee structures.
These concerns are unfounded and structured on a false comparison between the two systems. Here’s why:
First, Ethereum’s proof-of-stake hardware and monetary requirements encourage centralization of staking in service providers like large exchanges. Outsourcing poses a multitude of risks, including the co-option of the network at the stroke of a pen by the jurisdictional government in which these entities exist.
Additionally, in a world of unlimited fiat currencies, central banks and governments could also quietly amass a hoard of ethereum and slowly work their way to complete and legitimate control of the network. Security budgets that consist only of monetary limitations don’t matter in a world without physical scarcity.
Bitcoin is fundamentally different. Mining requires equipment and energy inputs, 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.
On top of that, proponents of this particular line of FUD completely ignore the positive externalities that on-demand energy demand, or bitcoin mining, provides. I have already written about this extensively in previous articles such as “Who Says Bitcoin Mining Has To Be Profitable”. TLDR: Bitcoin mining does not need to be profitable in the traditional sense due to the incentives that different use cases produce; sometimes anything is better than nothing, especially if your energy was destined to be wasted.
Taken together, these concerns show to me a lack of creativity and foresight that are indicative of a status quo or fiat mindset. Proof of work is innovation; Power consumption is not just a feature, but an incentive, not a fault in the system. Integrating proof-of-work technology and the energy industry is a natural fit and will only drive adoption and abundance for a better future for humanity.
I believe that the much-vaunted 99% reduction in power consumption that ETH will experience will ultimately lead to its downfall. Proof of work maintains ties to the real world where incentives are stronger than coercion. Proof of Stake chooses to cut those ties and incentivizes nothing but HODLing.
Energy innovation and integration will outperform the competition and drive returns without long-term counterparty risk. The need for innovation in the energy sector is becoming more evident every day. Bitcoin and proof of work will inevitably shine in the years to come, helping to bring cheap and abundant energy to the masses. Gradually, then suddenly; a low time preference is enough.
This is a guest post by Mickey Koss. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.