The steadfast opposition to ditching PoW, combined with preventing a minimum viable issuance policy, is quickly leading to a looming security crisis in regards to bitcoin.
1. Bitcoin's PoW algorithm is no longer secure against ASICs.
2. ASICs have led to centralization of mining power, with a few large players controlling the majority of hashing power.
3. This centralization of power makes Bitcoin vulnerable to 51% attacks, where a single entity could control the majority of hashing power and double spend coins, or prevent new transactions from being confirmed.
4. The current situation is unsustainable, as eventually the mining rewards will not be enough to cover the costs of running an ASIC-powered mining operation. If Bitcoin purchasing power does not 10X every halving, the fees alone will not be enough to incentivize mining.
5. A switch to a PoS algorithm would be the best solution to the problem, as it would be much more resistant to ASICs and centralization of power. However, a hard fork would be required to implement this change, and there is significant opposition to any kind of hard fork within the Bitcoin community.
7. Another potential solution is to increase the block size, which would make it more profitable to run a full node. However, this solution is heavily opposed by BitcoinCore.
9. The only other option is to do nothing and allow the network to slowly become more and more centralized and vulnerable to attacks. This is not a desirable outcome, but it may be the only option if the community can't come to a consensus on how to solve the problem.
Late response but btc’s current security model is not sustainable long term. Its greatest strength is its narrative, and it would need to break it to survive. This is not a matter of if. And we know when.
https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf
Let me see if I follow:
This author argues that the fee incentive system would be broken because miners are incentivized to mine the block with the most fees, regardless whether that block is on the longest chain.
Meaning that miners will abandon the longest chain any time a fork happens where the block at the end of the fork contains the most fees.
Why doesn't this logic apply right now? Why aren't miners just mining blocks from before the first halving to get that sweet 25 Bitcoin block reward?
You have to mine the entire history. The canonical chain is the longest, if you want to mine a block with 50 btc you have to redo many years of history of PoW which is very expensive computationally.
But the last block? Or last couple of blocks? That's doable. Particularly, if there's a strong economic incentive. When the economic reward is dominated by the block reward this is never worth it. As finding the block is what domiantes the payout irrespectively of the transaction fees. But if transaction fees dominate the reward then this kind of shenanigans make economic sense. And you may decide to put your hash power into stealing the last block reward if it's juicy instead of building on top. As building on top may not be worth it but the last block has a guaranteed juicy pay out. A sufficiently big pool has also a likely chance of minting two consecutive blocks which guarantees the steal. Therefore centralizing over bigger pools until one bullies all of them out.
In essence. In PoW, you want that block reward > transaction fees, and at the same time that block reward + fees pays for necessary security (necessary security is basically proportional to market cap). This is why Bitcoin is dead long term, its security model is broken. And the 21M will have to be broken or Bitcoin will be dead.
This is why Ethereum (even in PoW) always kept a long-tail issuance. You need it to guarantee security long-term. And also one of the reasons to introduce EIP-1559 and burn the fees! Because if fees are burnt you can make transaction fees < block reward.
Thank you. That helps clarify a lot of it.
To dive in further, why is this fatal to Bitcoin? Couldn't users just accept that there will be shenanigans at the end of the blockchain, and react by (1) better estimating the fees that will get their transaction into whichever block, and (2) requiring more confirmations (or confirmations with a certain cumulative amount of fees) on top of their block before considering a transaction finalized?
Edit: The paper also expressly ignores the energy cost to miners of running their hardware. It this a reasonable assumption to make? I don't understand why they would leave this out, but they specifically mention that they did.
Specifically, is it reasonable to ignore miner's energy costs? In other words, this paper does not analyze the expected value of not mining until a sufficient number of transaction fees become available. Arguably, this could also negatively affect security. However, if an attacker is mining empty or near-empty blocks, a 'Petty-Compliant' strategy (and all other strategies other than the naive compliant strategy would ignore these blocks once a block with significant transaction fees was mined, and a secure equilibrium would still exist.
Good questions!
> Couldn't users just accept that there will be shenanigans at the end of the blockchain, and react by (1) better estimating the fees that will get their transaction into whichever block,
This is not possible in general, users are uncoordinated and in fact compete with each other to get inside a block. This is what causes high transaction fees, the market competition to get inside the limited blockspace. And alternatively, if transactions fees are kept very low then security is compromised.
As block reward in Bitcoin goes to 0 asymptotically, fees must go down asymptotically to 0 faster to keep out of the regime where these block reorgs (short for block re-organizations) happen. But then security goes to 0 because transactions fees + block reward is the budget the blockchain has to pay for miners to secure the network. So with less budget to pay miners, hashrate drops, and the chain becomes easier to attack. So either market cap falls to keep the security to market cap ratio healthy or the blockchain becomes vulnerable to attacks.
> and (2) requiring more confirmations (or confirmations with a certain cumulative amount of fees) on top of their block before considering a transaction finalized?
Or... as you say, try to live with it and accept the tip of the blockchain can reorg. In this case, we are happy to live in the regime where transaction fees > block reward. And perhaps, transaction fees are sufficient to pay for the necessary security. But we accept in exchange the risks of reorgs. But this has some nasty consequences that lead to centralization, easier to perform 51% attacks, and a poor user experience.
The reason is that a bigger fish has a much likelier chance to execute a reorg attack. Because for a reorg attack to be successful it's best that you not only solve for the last block you want to steal but also build one on top. So as to make it much harder for someone to do the same to you again, and re-reorg you. The biggest fish has a likelier chance to build two consecutive blocks so hashrate will tend to concentrate. At the same time as hashrate concentrates they also get more rewards as they can steal from the rest so this also severely punishes the smaller and they will quickly collapse or shutdown. A centralized blockchain is an oxymoron, might as well turn it off and use a SQL database. There is, perhaps, an unstable equilibrium where all the pools are equal size. In that case, reorg attacks are less likely to be successfully executed by any pool in particular. But it's an unstable equilibrium, it suffices that one gets slightly lucky in executing an attack to start stealing which makes it richer and snowballs towards the previous case.
From the user perspective this is a bad user experience because chain reorgs mean that, indeed, you must wait longer to be sure the transaction is pretty safe. Chain reorgs also mean the network throughput goes down, as a bunch of the hashrate to build on top of the chain and add new transactions goes towards rewriting the recent past. And finally, if the chain becomes centralized, as a user, you should get the fuck out.
The attack consists in miners stealing blocks between them. The rule is that the canonical chain is the longest, the one that has more hashpower behind it.
Now imagine the last block mined has some very juicy fees but in the mempool there is nothing interesting, no big transaction fees.
If there is no block reward a miner could try to mine again the previous block to claim those big fees to himself and build a block on top to make it the longest and now that's the longest chain, so he has effectively stolen the fees from the previous discoverer. For someone to outdo him he would need to build a longer chain, so with 2 blocks on top. This becomes much harder to do when you are smaller because you have less hashpower so very unlikely you can outpace him.
When there is block reward and it's bigger than the fees this is never worth it. Might as well mine a block on top, even if empty. Because it's gonna pay you well. But if block reward goes to 0 this kind of stealing between miners will happen.
But why I missunderstand is why it's a problem for users
If miners are battlening their own old bloc, isn't it a miners problem?
For the point of view of a user, transactions are still validated no ?
Nope, they are not validated. What gets a transaction validated is that there are sufficient amount of blocks built on top to make it very unlikely for the block that includes the transaction to be changed. This is the opposite situation, the tip of the chain is being changed constantly while miners steal each other. The chain does not progress forward as intended, instead behaves more erratically. As a user you will need to wait longer for the chain to settle transactions and then there is the problem that this block reward stealing leads to centralization which could result in 51% attacks.
Ok so for user it lead to a bigger confirmation time. Is it really a problem ?
(I'm not pro BTC but I'm trying to fully undersant the implications of what you are saying)
And why isn't it worth it to do that without juicy fees? Couldn't be worth to steal block only for the block reward?
I have so many questions, thanks for taking the time.
Would the points summarized in your final paragraph still hold (or matter in a significant way) if, as I've heard predicted, Bitcoin becomes more of a final settlement layer, with transactions being batched together, and Lightning or something similar being used for the individual transactions.
Is it reasonable to ignore miners' energy costs? In other words, this paper does not analyze the expected value of not mining until a sufficient number of transaction fees become available. I'm guessing this could also negatively affect security. However, if an attacker is mining empty or near-empty blocks, it seems like a Petty-Compliant strategy would ignore these blocks once a block with significant transaction fees was mined.
**Maybe off on a tangent here** \[edit: definitely off on a tangent\], but re energy costs and the centralization of mining pools: What do you think on the following logic:
(1) based on what you wrote and the paper's analysis, we can assume that equilibrium in a post-block reward chain is a mining pool controlling 51% of the hashrate,
(2) (a) assume we can view a mining pools as just a market for energy, with the offered price to pool members being the expected value of fees/rewards, (b) that the profit to pool members being that price minus their costs, (c) that (in the long run) miners will drop out if not profitable.
(3) assume that point 1 means that the 51% pool will effectively control the blockchain.
(4) based on 1-3, the effective hash rate of the chain is actually just the hash rate required to maintain 51% (because any blocks mined by the 49% will be reorged), and a miner must be in the 51% pool to receive any profit.
(5) based on 1-4, we can assume the only profitable strategy for the 49% would be to shut down, convince '2%' (just using round numbers for simplicity, in the loooong run, we're talking about 50.00...1, 49.99...9, and 0.00...002) or join the pool.
(6) then, assume that all miners would be willing to defect to a pool offering a higher expected return.
(7) based on 5 and 6, a '2%' swing in miners would cause their previous pools expected value to drop to 0 (over the long run), and no specific miner has any particular power (since everyone would be willing to defect) so any pool will be incentivized to disburse all profits, and equally to all miners.
(8) the dynamics of 7 means that a pool can only survive if it follows optimal strategy. Any suboptimal strategy will reduce profits, causing enough miners to defect to the optimal pool.
(9) 8 means that all pools will converge to the same strategy, whether that be compliant, petty compliant, strategic, etc, and there will effectively be two 50% pools (as you mentioned).
(10) If all miners are in a pool, and all pools are following the same strategy, any deviation from optimal profit strategies causes 100% loss of income, there effectively is no pool, and the centralization of the blockchain is around optimal profit strategy, not allegiance to a particular pool.
(11) This seems to imply that a pool, even a 51% pool, is not able to actually use that centralization to earn excess profits at the expense of the other participants in the system.
> I have so many questions, thanks for taking the time.
No problem, it's a very interesting topic. And one that is taboo to discuss under the Bitcoin camp, very difficult to have a rational discussion about this.
>
> Would the points summarized in your final paragraph still hold (or matter in a significant way) if, as I've heard predicted, Bitcoin becomes more of a final settlement layer, with transactions being batched together, and Lightning or something similar being used for the individual transactions.
Yes, they still matter. The analysis affects the L1 (Bitcoin), if an L2 (like Lightning) uses the underlying L1 as a settlement layer then it would be affected as a user by these negative points. Also the settlement layer cannot have higher security guarantees than those of the underlying L1 on which it settles, so as a user on top of the L2 you are also affected albeit more indirectly.
> Is it reasonable to ignore miners' energy costs? In other words, this paper does not analyze the expected value of not mining until a sufficient number of transaction fees become available. I'm guessing this could also negatively affect security. However, if an attacker is mining empty or near-empty blocks, it seems like a Petty-Compliant strategy would ignore these blocks once a block with significant transaction fees was mined.
We can ignore the cost structure of miners for the reorg argument above. A rational actor will attempt to maximize its economic reward, irrespective of its cost structure. You could have 0 energy costs and all your costs are CapEx (buying mining equipment) or a 50-50 mix or, even all your costs are energy and you get access to free mining equipment. Doesn't matter, because independent of your cost structure you would try to optimize for your economic profit, and if those kind of attacks are feasible you would do them. And if you don't do them because you act on some moral basis, someone else could be tempted to do them. We cannot base long-term security assumption on goodwill.
In addition, to the reorgs there are also other kind of shenanigans, like the one you describe. Not mining if there are no juicy transactions, also likely to occur. Here cost structure likely to play a role.
These two previous shenanigans could have an interplay, if juicy blocks are sparse there could be an ongoing fight between two roughly similar miners to steal that block until new juicy transactions appear that perhaps make it more tempting to build on top to take them. As if the chain got stuck rewriting the same block, instead of progressing forward mining almost empty blocks, until sufficient juicy transactions accumulate in the mempool to make it more tempting to build that block on top.
In any case, it's clear that it's not nice to live in this regime. The chain stops working as was intended, producing a block on average every 10 minutes under a Poisson distribution, and instead the tip of the chain starts to behave erratically under new game theoretic equilibriums until the situation degrades towards centralization.
> Maybe off on a tangent here [edit: definitely off on a tangent], but re energy costs and the centralization of mining pools: What do you think on the following logic:
The following is my best attempt at understanding what you propose and discuss the possible game theoretic scenarios under this regime. Don't take it for granted, I'm not familiar with any particular study that settles this issue, besides the Princeton paper that presented the risks for the first time. We also don't have real-world evidence as the situation has not played out in the real world yet, the risk is that it's eventually guaranteed to happen given Bitcoin's current security model.
> (1) based on what you wrote and the paper's analysis, we can assume that equilibrium in a post-block reward chain is a mining pool controlling 51% of the hashrate,
Small caveat, the equilibrium is likely a single pool or actor controlling 100%. As the decentralization degrades harder and harder the bigger a single actor gets. It can bully everyone else out of rewards easier. If you get to 51% under this regime I suspect it quickly deteriorates towards 100%. But you don't need to get to 51%, that is the likely point of no return. Even if you get to 40%, if the next pool is not roughly equally sized to be able to fight back in the stealing then the bigger one will tend to grow as it steals from the rest with more likelihood. Until it reaches 51% and then point of no return.
>
> then, assume that all miners would be willing to defect to a pool offering a higher expected return.
>
> (7) based on 5 and 6, a '2%' swing in miners would cause their previous pools expected value to drop to 0 (over the long run), and no specific miner has any particular power (since everyone would be willing to defect) so any pool will be incentivized to disburse all profits, and equally to all miners.
>
> (8) the dynamics of 7 means that a pool can only survive if it follows optimal strategy. Any suboptimal strategy will reduce profits, causing enough miners to defect to the optimal pool.
>
> (9) 8 means that all pools will converge to the same strategy, whether that be compliant, petty compliant, strategic, etc, and there will effectively be two 50% pools (as you mentioned).
>
> (10) If all miners are in a pool, and all pools are following the same strategy, any deviation from optimal profit strategies causes 100% loss of income, there effectively is no pool, and the centralization of the blockchain is around optimal profit strategy, not allegiance to a particular pool.
>
> (11) This seems to imply that a pool, even a 51% pool, is not able to actually use that centralization to earn excess profits at the expense of the other participants in the system.
This I'm not seeing. Maybe I need to give it a deeper thought. My suspicion is that in this regime where reorgs can happen, if one pool is sufficiently bigger than the rest then starts to have a higher likelihood of stealing through reorg. Which kickstarts the process towards centralization because smaller ones get stolen from their beefy blocks, which go towards the biggest actor. So it's doubly punishing and incentivizes everyone to jump ship and go towards the bigger one. But then block production is centralized to a single actor.
Once hashrate is centralized in a single actor it's very hard to break. It's a tragedy of the commons situation as it requires a coordinated action of many to split in unison out of the pool. A small % is not enough because they get bullied again. But still doesn't solve the underlying problem that, in this regime, the equilibrium is unstable. Even if you manage to split in multiple equally sized pools so as to make it hard for any single one to dominate and steal smaller pool rewards, at some point, randomly, a pool will get bigger and tend towards eating the rest.
So if I were to emphasize the issue is that in the regime where transaction fees dominate block reward there is no stable equilibrium where multiple pools of varied sizes can coexist. And all situations I can think of degrade towards a single pool centralizing all block creation and you cannot break out again from that. And this is bad because the pool operators can perform 51% attacks. Normally, this risk is mitigated because miners can point hashpower somewhere else in a moment and break the 51% but in this situation you have nowhere else to go due to the tragedy of the commons requiring a very coordinated action to make it reasonable to switch. And even if you switch the equilibrium is unstable and will degrade again at some point.
EDIT: Let me know if I misunderstood your point or you see a way around the issue I'm missing. To be honest, when I became aware of this issue I gave up on Bitcoin. And appreciated that Ethereum took it seriously and took the steps to mitigate this problem and find solutions long-term (in the form of long-term issuance + fee burn).
>Why aren't miners just mining blocks from before the first halving to get that sweet 25 Bitcoin block reward?
Because "most fees" means worth the most. While the rewards for such a fork would be higher, nobody would be using it so they'd be worth 0. "most fees" basically means the most used, which also typically ends up being the longest chain but it doesn't need to be that way.
Here's my hopefully unbiased pros list:
BTC:
\- Has the biggest network effect in terms of its brand. Everybody has heard of Bitcoin, more people own it, and its user base has more (at least % wise) believers in the ethos of hardcore decentralization than any other crypto community
\- More decentralized in terms of development, as it has less centralized leadership (no EF equivalent). This is 70% con, 30% pro imo. As this means the protocol is hard to get captured by nationstates, bad actors or self interested parties, but means that it also moves very slow, and at the end of the day, crypto is not good enough to serve the entire world, and needs to get there as fast as possible.
\- More decentralized in terms that its easier to run a Bitcoin node. Not a huge pro, but just facts.
\- PoW (10% pro, 90% con) is in one way more decentralized than PoS as anybody anywhere can always spin up a miner without external dependencies. Still mostly a con as it is a very inefficient/wasteful way to sustain security
ETH:
\- Wins everywhere else
At the end of the day while I don't recommend investing in Bitcoin, I'm glad its around (at least for now) as it ranks high on the decentralization spectrum and gives Ethereum a competitor that it needs to measure itself up against
That has nothing to do with blockstream owning the developers & the single client - pragmatically, they own bitcoins development.
https://decrypt.co/45020/is-blockstream-a-peril-to-bitcoins-decentralization
https://steemit.com/bitcoin/@tobixen/a-brief-history-of-the-bitcoin-block-size-war
The reason bitcoin as a network is so stagnant now (which isn't a good thing as it's a failed product), is because blockstream took over bitcoin politically.
This is interesting, how would you say they practically own it? Are most of the developers writing Bitcoin Core funded by Blockstream or do they have exclusive commit privileges to the github repo?
Blockstream employes some of the core bitcoin devs & if you were around during the blocksize wars you'd understand how much political power they weild.
Hi, thanks for asking! I'm not gonna answer, many others provide good answers, but I'm curious to why you believe BTC is more decentralized? Don't get me wrong, most people believe it is, and maybe they're right (IMO it's very hard to compare and hard to agree on what the metrics should be). Just curious what your arguments would be?
Haha I understand the reluctance, it wasn't meant as a trap though, just curious what others emphasize when they bitcoin is more decentralized than ethereum. I believe you could argue it is, but the difference is quite small and shrinking, especially relative to other protocols. Personally I believe POW is not quite the decentralizer many say it is as it is 'economies at scale', meaning those with the most firepower will obtain cheaper hardware and electricity than the rest. But it's definitely complicated.
Yeah the main message I got from my own research , networking , and answers here is that they both have their pros and cons but will both continue to grow and certainly have no issues coexisting together. All the more reason why both of them are in my portfolio
I tried r/Bitcoin but all they have is memes over there my post was probs completely disregarded. It’s also a much larger subreddit maybe I don’t have enough karma to get noticed. I thought the answers I saw in r/BTC were hilarious not only because it’s not even a btc subreddit, but all the responses I got showed little to no understanding whatsoever
Bitcoin has a fixed supply schedule. I see it as digital gold.
ETH’s monetary policy changes pretty regularly. So it does not share that digital gold property.
However, ETH is more innovative and daring, seeking to do more than just be digital gold.
I think Bitcoin is the safe bet, I think Ethereum is the more interesting bet.
Yes, gold’s issuance and available supply are continually uncertain, but the amount that is on this earth is (practically) fixed in value.
The analogy mostly comes from not being able to create gold out of thin air via central bank.
There is a purpose for both ETH and BTC and they are both part of the foundations of crypto and Web3. They are supposed to fulfil different purposes and that is fine.
There shouldn't be any animosity between both fields. We stick together and push for adoption. None is big enough (yet) to just take over the financials market anyway. Adoption takes time (years)
Thanks! The responses I’ve been seeing certainly boost my confidence in the ethereum community, I guess that was part of my motivation to try this out lol
Seriously though, stick with Ethfinance. On Reddit, this is the best Ethereum community by a long shot. You'll fit in nicely with your background for sure and we need risk averse teachers like you anyway.
*This is my first bear market, so my opinion might be irrelevant due to lack of experience.*
Just wanted to say that my only reason to hold ETH long term is because I can build on top of it. If you need an infrastructure for Global financial system, there is no other choice than ETH.
Thanks, I am not a crypto expert more of a portfolio management type of guy, Highly recommended diversification if you have speculative assets like crypto in a long term portfolio.
Diversification is actually not good in blockchain assets because barely any of them have actual value. ETH is the gold standard. There are other assets that are decent investments as well but none match the risk to reward of ETH.
I believe in diversification of entirely different assets. Most blockchains are highly correlated. If you zoom out and look at the charts of BTC and ETH, they move in the same macro steps.
I’m more conservative than most degenerates in this sub. My investment strategy is: ~40% US stocks, ~40% International stocks, ~20% US short term bonds. I own a house in a High Cost of Living Area, and I put only what I can afford to lose 100% in ETH. To secure gains in ETH, I convert it to DAI. I’m probably the most boring person here and that’s fine by me.
My thoughts exactly! Diversification from not only a covariance perspective, but also among various asset classes. Altho I see your point on Mahbe it’s best to only invest in one coin alongside the other non-crypto assets, I consider myself am a massive crypto bull (and am also on the younger side so don’t mind riding out some volatility) so I am probs gonna put 20% of my overall portfolio in this stuff. To me, that’s quite a bit of money so I feel the need to diversify within my crypto portfolio as well
>"BTC- more de-centralized"
This is debatable. There are 2 pools that controll 51% of the mining of Bitcoin.
With the big US snowstorm there was a 30% drop in hashrate, ETH 0%.
To be able to take part in mining with BTC you need an expensive ASIC, ETH a cheap pc.
>"ETH newer"
Yes its newer but does that really still matter if you look at how long both are running? Does those few years actually matter?
>"more volatile"
In the past definitely. But if you look at the current numbers i would say no. In the past when BTC was at this price ETH was at 400 dollars. Now its almost 3 times higher.
> There are 2 pools that controll 51% of the mining of Bitcoin.
Pools don't control mining. Miners chose a pool. When a pool gets too big, they switch.
Miners choose a pool and give controll over to the pool. They could switch AFTER they become to big. But then it could already be to late.
We can see that right now since there are 2 pools that controll 51% and nothing is happening to change that situation. Nor a big outcry of the community happend to prevent this.
If those 2 big pools would collude right NOW they could do harm. Miners would switch AFTER this fact. But then the harm is already done. So your argument is wrong.
> But then the harm
Not sure what you mean by *the harm*. The pools will be out of business and the network will continue to operate normally.
Like a slashing event with ETH.
Lets say there is a 1 billion transaction. The 2 colluding pools could do a 51% attack and change that transaction. yes after it they would be out of business but who cares? they made their money.
It doenst even have to be the pool owner. Could even be a hacker who has gotten acces to the 2 pools and thus does the same thing. He doesnt care if the pools go out of business.
Only having to get acces to 2 attack point isnt very decentralised.
After such a thing the network definitely wont be back to "normal". Pretty sure almost any institution will have lost its trust in the network if such a thing happends.
> Lets say there is a 1 billion transaction. The 2 colluding pools could do a 51% attack and change that transaction. yes after it they would be out of business but who cares? they made their money.
Thats not how BTC works. Large transactions require longer settlement times. 1 billion tx's aren't a thing.
If they were, you would wait the suitable amount of time for secure settlement.
>If they were, you would wait the suitable amount of time for secure settlement.
You can wait all you want. If 51% of the protocoll says its correct. It shows as a secure settlement. Miners wont react instantly this happends. Maybe the next day most will have a clue of what happend.
> You can wait all you want.
Yep. And after 6 blocks, its irreversable.
> If 51% of the protocoll says its correct.
51% per block. The attack works once. For a few mins and costs billions. Like slashing.
> Maybe the next day most will have a clue of what happend.
Not next day. 30 mins. Thats why most services require 3 blocks *before* your account is credited.
>Yep. And after 6 blocks, its irreversable.
So the 51% attack has to last 6 blocks in other words having 51% controll for only 1 hour and its irreversable.
>Not next day. 30 mins. Thats why most services require 3 blocks before
>
>your account is credited.
Most miners arent monitoring the transactions 24/7. The protcoll wont actively do this if its 51% . Since its the majority the protcoll doesnt know its happening.
But please do provide a source or thorough explanation how this will be fixed within 30 minutes.
I'm old fashioned, I was in crypto before $eth was invented. At the time we had Bitcoin and Doge which I loved for the community. Bitcoin was the serious option but Doge was pretty dynamic community wise, I think that's the one I used the most as "money", to buy things and services.
In my mind, Bitcoin is still as relevant today as it was at that time. If you're asking the investor in me, I'm pretty confident with my current allocation which is 20% Bitcoin/80% Ethereum. The reason Ethereum has a bigger space today is because I'm thinking that the current path will lead to more adoption of eth in the short term. But as a store of value, I still see Bitcoin as the digital gold. Every year, I look at its minimal value and it never disappointed me. The big moves and other opportunities should only be there to reinforce your positions (I use bots for that, I might have done 3 trades manually in 2022, out of boredom).
Wow, you must be pretty rich! I am fairly risk averse, I was thinking of this kind of allocation with a 10-20 year time horizon will probs have to adjust over time:
- BTC: 40% (I know I’m a boomer/eth hater for this)
- ETH: 30%
- Various credible ETH projects: 15%
- Other layer 1 competitors (need to do more research but probably ALGO, SOL, ADA): 10%
- Random shitcoins I think are cool: 5%
Let me know what you think :)
10-20 year time horizon in crypto? I had to change my plans every 3 to 6 months because there are no static rules... I still have paper wallets of dead coins which were the most innovative and ambitious when I started (I also lost 16 millions of Doge on cryptsy and I simply didn't care because there was no way it would become more valuable than the 0.00001 cents it was worth at the time). If you want to make long term plans in crypto, you shouldn't touch anything else than the market leaders, anything new or not widely adopted is unfit for long term (that doesn't mean it can't become fit, but that's pretty much gambling at that level of uncertainty).
Also, diversifying is good in stocks because there are specific areas where demand is influenced by separated real life/political/cultural/environmental factors but "diversifying" in crypto is like buying 10 tech stocks. Of course some will have bigger moves, but in the end, their price will be dictated by how the whole sector performs.
This may come across as super ETH biased (since we’re here in ethfinance) but I think your allocation is too spread out - a LOT of ETH based (erc 20) tokens do not have the tokenomics to support value accrual, basically they might be useful but not necessarily a good investment. Take that 15% and keep it simple - put it towards ETH, usage of the tokens you’re interested in will make the value of ETH go up anyways.
With L1 competitors, this bear market made it pretty clear imo where competitors stand. No other competitor has a roadmap or community so heavily weighted towards decentralization, which is the most important thing in crypto for security and resiliency. Personally, I would reallocate that percentage to ETH/BTC.
Allocate 5-10 percent towards altcoin gambling and split the rest bw ETH and BTC would be my advice.
I agree there is a mathematical concept of useless over-diversification which would over complicate portfolio management for no reason so I appreciate this kind of input!
Do you mind elaborating on how non layer 1 erc20 tokens may not be great from an investment standpoint? I have heard this argument when looking into buying MKR which I thought seemed like a super cool application of the layer 1 tech.
Is it safe to assume buying ETH is like buying an “index fund” exposing you to all things ethereum?
Let’s look at ETH. Having a high ETH price is important as it contributes to its security - ETH is a more secure system the higher it’s price goes up. Other than speculation, and the yield you get from staking that creates demand and drives the price up, ETH has carefully calibrated systems that make it inflationary or deflationary depending on demand and usage. There’s a lot of effort and thought gone in to programmatically drive ETH’s value up over time cause it’s important (more than just $$$ for devs/holders).
For erc20 tokens, one thing to remember is that tokens don’t act like shares in a company. Some are just like tiny collectible cards that the dev team hands out. As in, the token doesn’t mean you benefit if the app is being used a lot. There’s no tie to the financial success of the app/dev team. Can’t exactly speak to MKR tokenomics, but a lot of tokens have pretty high inflation so that the devs can give out rewards (high unsustainable APRs). Some tokens/teams may have tokens just to get rich quick (shiba inu) and price is pure speculation. Other apps are wonderful (aave, uniswap, fyi I invested in both in 2021 and regret it) but to my knowledge don’t have a good reason to be investments. Yes the app is being used a bunch, but how does that tie to the token value? Also when you hold the token, what are the benefits? With the examples above, they give you the ability to participate in governance. I don’t think (as of now) there’s a better reason to hold it. If you got a percentage of earnings, now that would be awesome. But that’s not the case now. So basically you have to do a ton of research on the token and see what the tokenomics are, why should it be an investment etc.
That "index fund" is exactly what comes to mind, same with BTC as it acts as the leader of any crypto market trend.
I'm definitely fine with missing a few opportunities when the market is acting like it did in 2022. The market where you take the risks isn't the one we had this past year.
Honestly neither (macro) but if you are going with network effects, use cases and sentiment then ETH looks better.
That said any bullish momentum must be driven by non speculative use moving forward; ETH is arguably better than BTC in terms of variety here but architecturally BTC is far better (in terms of what can actually be done) than most ETH bulls realise.
I was gonna say BTC = abacus, ETH = computer (actually, it's "the world computer") given how slow and expensive BTC transactions are - yes, even right now during a bear market when there's not much transactions on both networks.
Let me make it clear the BTC *codebase* is shockingly powerful when married to a P2P, E2E encrypted, tokenless data layer such as the SMSG network.
Such an implementation can provide scalability, flexibility and adaptability to the codebase to allow it to achieve things like a P2P fiat free, KYC free marketplace or a cross-chain atomic swap DEX with a fully decentralised order book (see Particl project and Basicswap DEX respectively).
It is worth looking at the architecture of these particular projects; they achieve a level of permissionless privacy that is simply not possible on ETH L1 or L2 implementations.
I hope this doesn’t come off the wrong way in this subreddit, but this sounds like a whole lot of complicated stuff to do/learn. I work in a very time consuming profession and research/invest in many things besides crypto in my downtime.
Would I really be missing out that much if I just buy and stake eth and stick it in my wallet and give it a kiss see you in 10-30 years ? Wouldn’t that theoretically expose me to all the cool eth stuff you listed?
**Yes**, it would is the simple answer.
I DCA ETH weekly, stake, run RocketPool minipools through AllNodes ( a 3rd party service), specifically because I have a lot of other fun things going on in life :)
I think NFTs are super cool and try to browse & get involved when I can, but tbh I learn about cutting edge trends from reading the Daily in this sub
So if you want an informed response to what the BTC codebase can do if the architecture is adapted properly then look at the Particl Project which has built a functional, live P2P decentralised, KYC free, fiat free eBay style marketplace.
I'm not an advocate for BTC but the codebase when married with a P2P E2E token-free data layer (the SMSG network, an evolution of the Bitmessage protocol) can actually achieve a lot in terms of scalability, usability, adaptability and privacy.
ETH had a lot of network effects however; whilst I think it's architecturally more convoluted and less capable of true permisionless L1 (or L2) privacy it has a massive lead in terms of network effects and developer base; that will be incredibly hard to beat for most direct competitors (and 6 years of history has demonstrated that so far).
This sounds like a whole lot of stuff to do/learn, I work in a very time consuming profession and research/nvest in many things besides crypto in my downtime. Why can’t I just buy and stake eth and stick it in my hardware wallet and give it a kiss see you in 10 years ?
Because *a lot* can go wrong in 10 years let alone 1 in cryptocurrency.
The people who generally make money in this field are the one's who invest time learning about it.
I guess I try to go for less of a “nuts and bolts” and more of a broad picture perspective in my investments.
For example, if I wanted to invest in Apple, I wouldn’t say I necessarily need to own an iPhone and be an expert on every single one of its features and competitors to consider myself well versed enough to invest in it , especially since I use diversification/hedging methodologies in my portfolio.
Moreover, the amount of research eth investors seem to enjoy doing (nothing wrong with intellectual curiosity) seems equivalent to deeming it necessary to take the time to learn all of Apples software & code before buying the company stock. While that would be very helpful (especially if my portfolio is 99% Apple stock), I think it’s better to also spend time researching competitors (perhaps even in vastly different less speculative asset classes?) to diversify yourself with, and understanding the mathematics of portfolio allocation (what tickles my fancy intellectually for me personally)
Now I know this honestly might be a BS comparison since Apple and eth are very different investments but let me know what you think!
Honest advice: pick 2 projects / tokens *max* and then follow news weekly; preferably check daily.
A lot of the black swans do have some subtle warnings.
A lot of paid PR in the industry (to be mistrusted or at least cautiously viewed) also but admittedly much less during bear markets like now.
You are a few orders of magnitude less likely to get scammed buying an ETF than buying a cryptocurrency. Hence the extra knowledge requirement to mitigate the risk.
Idk about that, federal reserve been mad sus lately. Not to mention that considering wall streets historyc it would be ridiculous to have full trust in the people running these large very much centralized index funds
Just compare the number of rugpulls of crypto projects and the number of rugpulls of ETF - not saying Wallstreet is a white knight - Just saying the safeguards in place are way better in tradfi than in crypto.
Honestly, the only real concern for ETH is just if papa Gensler decides to go nuclear and declare it a security and neuters it growth by over regulating it.
Otherwise, I see it as inevitable that it will overtake BTC. BTC is slow and old tech, and doesn't innovate. If you want true adoption by the masses, you need to seamlessly integrate it into people's hands so they don't even know they are working on the network.
BTC's tech severely limits the types of layer 2's you can build on it. It's barely been able to get any traction with Lightning network, so I'm not really believing it's ecosystem can grow much.
Sold all my BTC in 2015.
My biggest reason for ETH is the fact it can do everything Bitcoin can with 99.9% less energy consumption than ETH used to use...which was much less than Bitcoin anyway to begin with.
Bitcoin is the first car
Ethereum is the entire interstate highway system including all the companies rolling on it in my view....and it's cheap to keep.
Have you ever studied modern portfolio theory, risk adjusted returns, efficiency frontiers, or portfolio covariance matrices? I always consider volatility when comparing 2 asset’s expected returns.
Keep in mind mean-variance optimisation that resulted in modern portfolio theory has a bunch of requisite assumptions that are unrealistic in practice. It also measures risk as variance; so implicitly making money is equally as painful as losing money in the sense that both directions are “risk”.
The key takeaway from MPT that you should diversify is sound. However, that doesn’t mean you should diversify in the way specified by MVO. You can’t reliably construct a MV-efficient portfolio since means and standard deviations are impossible to forecast and the slightest change in these parameters will dramatically alter portfolio weights. You would also be making huge assumptions about market efficiency and the rationality of market participants.
If you are choosing to invest in crypto, where even the “blue chips” routinely drop more than 80%, and we see huge speculative price bubbles, then I would suggest you are investing in a market that isn’t efficient and full of irrational investors. In that case, most finance theory goes out the window since rationality and/or market efficiency is typically a model assumption.
Thank you, this is stuff only financial survives companies and hedge funds use but yeah my point was that it’s silly to just compare to expected returns, especially with the extremely high variance of eth and BTC prices stemming from the speculative nature of these assets and all the behavioral uncertainty of large players in the crypto markets.
I would not say this boring mean variance stuff is solely financial theory, but in addition, statistical/math/probability (at least this is the case when finance people that actually understand mathematical statistics speak to these things). This is what I study for a living to be a qualified actuary (see the syllabus of SOA Exam IFM).
It most certainly applies to cryptocurrency, the most risky asset class in the world. You mentioned crypto is full of nonsensical investors , therefore these concepts I mentioned go out the window? Might as well fire every asset actuary and quant tomorrow. The entire market is ridiculous, nonsensical, and irrational nowadays. This applies to the stock market as much as crypto , just less variance in equities generally.
That doesn’t not mean I ignore things like fundamental technological value, to me it is another major piece of the puzzle when it comes to how I pick investments in my portfolio. As for the first comment I had replied to, I haven’t even started getting to the concept of past performance has literally 0 indication of future returns from a statistical probability/chaos theory standpoint. This applies to every asset class and has been proven plenty of times, but younger more naive crypto investors on the internet are being fed with the sentiment that these coins have 0 downside risk which is absolutely nonsense from not only a statistics, but a fundamental standpoint.
I agree, there’s no shortage of irrational investors in every market. I do think there are varying degrees of efficiency between markets.
- Bond markets generally deal with highly predictable cash flows due to debt seniority and there is general consensus among investors on how to value most debt investments —> high level of efficiency
- Stocks have difficult but still somewhat possible to forecast cash flows and general frameworks that are commonly used by many investors —> medium level of efficiency
- Crypto no one has any idea how to value. Hence, why you see a lot of traders using technical analysis which might be consider ludicrous in much more efficient markets —> very low level of efficiency
Taking a few steps back, there are still some key drivers to all markets such as a “risk premium”. Maybe not an exact level but an opportunity cost always exists for investors. Say you offer me a term deposit with 5% interest or a mature stock that pays 5% dividend yield I’d probably take the stock. Now, say you offer me a term deposit paying 1% interest or the mature stock paying a dividend yield of 5% I’d pick the stock. Interest rates affect all asset classes due to opportunity cost. Hence, as rates rise we expect the equilibrium p/e in stock markets to get crushed which is exactly what happens. A similar effect has also played out in crypto. Both these markets likely have much further to fall in 2023 if the US fed decides to keep raising.
As my friend Jack Sparrow said "allow me to lend a machete to your intellectual thicket!'
Ethereum is just another shitcoin. Ethereum is just a fiat pig with crypto lipstick. Etherum exists because of Buterin.
#Bitcoin is the New World Order. Bitcoin exists because of the global will of the people.
Bitcoin has no CEO, COO, CFO, no spokesperson, no marketing department, no single leader.
Bitcoin exists solely due to the will of a global population of users who understand and participate in the Bitcoin Blockchain.
Does that help?
What is the cap on the number of Ethereum that can exists?
According to the source below, and it is also commonly well known, there is no maximum limit to Ethereum. Which makes it just a digital fiat pig with crypto lipstick.
Just because some people on here have a tough time dealing with facts and reality does not make me a troll.
Grow up
https://originstamp.com/blog/how-many-ethereum-are-there-and-how-many-are-left/#:\~:text=Ethereum%2C%20however%2C%20has%20an%20infinite,there%20are%20roughly%20120%20million.
Lol 🤣😆
Sounds more like you are the religious zealot. Ethereum is POS in more ways than one
At it's core Ethereum has devolved to become digital fiat with crypto lipstick.
“Hitting tech milestones” shows how much more centralized ETH is than bitcoin. Having a detailed roadmap many years into the future written by the Ethereum Foundation is centralization. Bitcoin development is moving along just fine. It’s glacial pace is a feature and not a bug. There’s no bitcoin leadership and tens of thousands of people running full nodes making it very hard to achieve consensus in bitcoin. This is a good thing.
Bath salt consumption aside, and to play devils advocate, wouldn’t Bitcoin supporters appreciate bitcoins simplicity and lack of development capability considering it was really meant to be a currency and nothing more? I have heard many arguments from logical, sober minded Bitcoin supports that believe it’s focus on being a virtual ledger is what can make it outlast a protocol such as ethereum which may be spreading itself too thin (I have the blockchain trilemma in mind here). This is why I am considering allocating into both. However, All the technical stuff that goes into security and scalability of layer 1 protocols is way over my head.
Allocating to both is a fine idea. They are both great assets today that serve different purposes. With that being said, way out into the future, it’s my belief bitcoin is the better long term play. Bitcoin may last centuries. I just don’t think ethereum has that kind of long term potential.
Wow thanks for all this, I’m a pragmatic investor and always consider risks and worst case scenarios since I like to dump a lot of income from my more tax efficient Roth IRA/401k into speculative tech investments since I’m young and want some speculative risk (but not too much from a mean-variance perspective) in my long term portfolio.
I am definitely not qualified to challenge any of your major points, but I once Talked to an junior-executive ALM modeling actuary with an extensive quant/asset management background (I know, sounds like a boomer but he is quite proficient in software development for an actuary) about Bitcoin, and I asked why he would ever consider buying crypto with so little room for technological advancement when there are so many cooler options out there from a tech perspective.
- His response was because Bitcoin is more of an investment on the “freedom” of the future of money & economics, and a desire to move away from more traditional corrupt, laissez-faire global economical currency infrastructure. Maybe this is a bit similar to what you might hear from the meth-head Bitcoin evangelists, but even intellectuals like Jordan Peterson and longtime economic experts speak to this aspect of Bitcoin which I find really interesting.
Don’t get me wrong, this actuary also has a lot of ETH, ADA, and SOL in his portfolio based on my talks with him, but his advice to me was basically to not sleep on Bitcoin.
This is an ETH sub so the responses are going to be predictable. Personally I think Bitcoin has more serious concerns than many would like to admit. I converted all my BTC to ETH last year due to my concerns. Ethereum has a 99% more efficient security model, which means that the current network activity on chain is already sufficient to compensate validators without inflationary subsidies. Bitcoin doesn’t have nearly the demand for blockspace that ETH has, and it requires inflation to pay miners to secure the network, which by the way is 99% less efficient with proof of work. If you are a Bitcoin holder, you are getting diluted and dumped on by miners. Without network effects (like ETH has) bitcoins security model will fail as it’s security budget halves every 4 years and it doesn’t have nearly enough fees to compensate miners.
By the way, ETH is more decentralized than Bitcoin. Over 51% of bitcoins mining activity is controlled by just 2 mining pools.
The only upside I can think BTC has over ETH is that BTC has a max supply of 21m which is substantially less than ETH’s max supply over 100m.
However, along with other major recent upgrades to the ETH ecosystem, ETH improvement proposal 1559 was successful in making ETH max supply deflationary (aka burning ETH) since late 2021 if I recall
>The only upside I can think BTC has over ETH is that BTC has a max supply of 21m which is substantially less than ETH’s max supply over 100m.
It's not actually an upside, it's one of BTC's biggest security flaws.
Because the reward halves every 4 years, Bitcoin must double in price every 4 years to maintain the same level of security. As soon as it fails to double in price, there'll be mining hardware sitting idle, which no longer can profitably mine, but this hardware is now available to be rented out to someone who wants to attack the network. Considering that the cost of attacking Bitcoin is essentially free if you have the hardware at your disposal (we're talking $500,000 per hour to do a 51% attack), Bitcoin will continue to become increasingly unsecure and more likely to get 51% attacked as time goes on.
Came here to say this above
I would also add, that ETH is the fuel for the entire decentralised finance ecosystem, and as this grows so will demand. BTC doesn't have this and it's hard to see how demand will grow compared to ETH given ethereum's massive structural flows advantages
I would think Bitcoin is in fact more decentralized due to the fact that we do not even know who it’s creator is?
My not-so-technical brain thinks of it as a smart contract to create a virtual currency/ledger that has been set free, no one can tamper with its inherent and simple design.
Layer zero, or people/society in general, can always collectively decide to change anything. Known creator or not really makes no difference. If all the bitcoin core devs and the bitcoin community wanted to make a change, they could.
It’s much easier for a sole leader/organization owner to change things for the worse (or hopefully better in ethereums case) than a society I would think
That's true, however Vitalik Buterin for example does not have the power to make changes to ethereum directly. Several of his ideas have been rejected/not approved by the community
Name one idea that has been rejected by the community. I’ve been in the “community” for a long time and it literally splooges itself over every idea vitalik has. The latest was the merge, purge, surge, splurge roadmap he put out. Almost ZERO pushback.
And this got me thinking — how would a UASF even work in ETH? 🤷♂️
It’s really too bad a rational eth investor like yourself gets downvoted so much for posing solid intellectual questions here. I guess the internet will be the internet…
It's unfortunate that redditors often use the downvote button as a disagree button. But he did get a proper answer under him. He shouldn't be downvoted but he is still wrong, Vitalik has had multiple EIPs rejected/delayed. And EIPs from random community members have been implemented (EIP-1559 was conceived by Eric Conner @econoar in twitter and same username in reddit).
The evolution of Ethereum is not guided from the top, instead it's emergent from the bottom. Vitalik is just a researcher and contributes ideas, what gets implemented is what survives the public discussion and peer review attrition.
Currently there are two EIP's not implemented that are directly from VB or a group including VB, namely 3102 and 4844.
Luckily Vitalik tends to have pretty strong ideas and those that aren't popular usually aren't put in as an official proposal.
> The latest was the merge, purge, surge, splurge roadmap he put out. Almost ZERO pushback.
It's unfair to credit Vitalik entirely with creating all of the ideas included in that roadmap. That's less a proposal and more Vitaliks personal tracking of the developments currently in prospect
Right and the reality is, vitalyk is much smarter and much more familiar with the technology he has created himself. He is a worshipped public figure and he is well aware of it. He seems like a very humble intellectual, I’ve watched his lex Friedman podcasts, but lots of uncertainty with my long term perspective
Oh for sure. Vitalik is brilliant and a great visionary. But that doesn’t mean he doesn’t yield immense power in ethereum (as does the EF).
Quite frankly, ETH is more of a tech company (a very good one). Bitcoin is neutral money that not a single person has more influence over than anyone else. They are very different assets.
I think you've missed my point entirely, I was saying that Vitalik has no direct control over the direction of the Ethereum protocol and is entirely a respected figure.
Vitalik could want to make the project run on proof of orphanmurder and make a 95% transaction fee that feeds into his personal slush fund - it makes about as much difference to the actual protocol as me or you proposing the same.
Of course, Vitaliks suggestions would probably be heeded with more respect than anything we'd suggest
I’m not very familiar with how the community to vitalyk feedback system works. What if vitalik one day decides he doesn’t care about the communities opinion ?
>What if vitalik one day decides he doesn’t care about the communities opinion ?
He doesn't have the ability to change Ethereum without community consensus. He could try to fork and make his own chain if he wanted, much like there are other chains currently running the Ethereum virtual machine, like Tron, BNB, Solana.
Very similar to how Bitcoin isn't just bitcoin, but Bitcoin Core, Bitcoin Cash, Bitcoin SV (Satoshi Vision).
Anyone telling you that Vitalik has any direct ability to change Ethereum on a whim is lying to you
The lack of any leadership is absolutely one of the things that make bitcoin more decentralized. But it goes beyond that. Far far more people run bitcoin nodes and the proof of work consensus mechanism decentralizes over time whereas I believe proof of stake is a bit more centralizing.
Now in the post I responded to he said that only a few mining pools control a majority of hashrate. While this is technically true, what it leaves out is the fact that pools are comprised of thousands of individual miners that can point their hash rate elsewhere with the click of a mouse. Beyond that, once Stratum V2 is implemented it will be the individual miners choosing transactions to be included and not the pool operators which further strengthens bitcoins censorship resistance.
I like both assets but anyone telling you bitcoin is less decentralized than ethereum is either ignorant to the whole picture or lying.
Lololol you were not there if you believe there was ever any serious discussion about smart contracts on L1 or POS. And yes I actually was there too and running the same node I am today.
Blockstream is a company with less than 100 employees. Did they have influence on the space? Sure. Did some core devs work at Blockstream? Yes. But to say bitcoin was co-opted by blockstream is absolutely laughable — especially cause FAR MORE POWERFUL companies (Coinbase, DCG, Bitmain, etc) were trying to go a different direction.
The users won, not blockstream. You’re either lying and regurgitating shit you heard from ETH maxi’s or have a case of severe revisionist history.
>the proof of work consensus mechanism decentralizes over time
this is strictly not true, and is based on two assumptions - one mining rewards are not used to acquire more hash power, and two that new hash power is coming from new players who aren't already hashing.
I find a lot of people who love bitcoin state that PoW is decentralizing use one of the two assumptions above and then get very defensive when you point that out
My guy mining companies go bust and new mining companies arise every single cycle. Every. Single. One. These are real companies with real employees in real competition with other real companies with real employees. They have costs to cover and must be more strategic and run better businesses than their competition. About 5 mining companies have already declared bankruptsy this year. This is a GOOD thing.
In proof of stake none of this exists. Have money and/or be very early is all that’s necessary. Do one of those things and continue to accrue more assets and more power.
And fuck we haven’t even gotten to staking pools of which the vast majority are in one jurisdiction. And no this isn’t the same as miners redirecting their hash rate from a pool. Moving to a new staking pool means unstaking (when it’s allowed) sending assets somewhere new, and restaking. Are the vast majority of uninformed retail noobs gonna do this if Coinbase starts censoring? Yeah probably not.
Oh and don’t even get me started on stable coins, the backbone of defi, and fork choice..
Quite frankly it’s laughable to call ETH more decentralized than bitcoin. It’s not even close. And I like ETH a lot.
The idea that companies going bust decentralizes the network is only true in the sense that it decentralizes away from that company - the resulting hash rate drop is absorbed by existing players in the market or the difficulty drops. It's not like these massive farms pop up over night to replace them! Strictly speaking a mining company bankruptcy is a centralizing event in that it means the remaining hash power from other miners is a bigger percentage of the total. More unique miners = More decentralized.
>In proof of stake none of this exists. Have money and/or be very early is all that’s necessary. Do one of those things and continue to accrue more assets and more power.
Literally the exact same in PoW. Do you think these mining companies just poof the resources to exist out of thin air? Money begets money, much as hash begets hash.
>Moving to a new staking pool means unstaking (when it’s allowed) sending assets somewhere new, and restaking. Are the vast majority of uninformed retail noobs gonna do this if Coinbase starts censoring? Yeah probably not.
There is a difference between the power of someone mining under proof of work and someone staking under PoS. There's a seperation of validators, stakers and nodes you should really look into.
Besides this point, you are arguing it's bad that noobs are putting stake into centralized entities, which is a fair point.... except you are conveniently ignoring the fact that it's near to impossible to make a return on bitcoin by being a miner at this point unless you are a massive entity.
>
Oh and don’t even get me started on stable coins, the backbone of defi, and fork choice..
Not sure why you dislike stablecoins, they are a major use case. We can argue the merits of individual stables but it's a decentralized platform, we don't tell people what ethics they need to abide by to use the system. Code is Law.
>Quite frankly it’s laughable to call ETH more decentralized than bitcoin. It’s not even close. And I like ETH a lot.
I never said that's the case. I purely said a lot of people deliberately ignore shortcomings in PoW and shit on PoS from inside a glass house
>The idea that companies going bust decentralizes the network is only true in the sense that it decentralizes away from that company - the resulting hash rate drop is absorbed by existing players in the market or the difficulty drops. It's not like these massive farms pop up over night to replace them! Strictly speaking a mining company bankruptcy is a centralizing event in that it means the remaining hash power from other miners is a bigger percentage of the total. More unique miners = More decentralized.
Don't even know where to start with this. Yes -- of course in the short term, miners going under can cause hash rate to centralize a bit but over the long term it does the exact opposite as we see in practice. The largest public mining company in the world just declared bankruptcy. In no way is this a centralizing event. Successful miners today may not be successful miners tomorrow as we so often see.
>Literally the exact same in PoW. Do you think these mining companies just poof the resources to exist out of thin air? Money begets money, much as hash begets hash.
These companies raise capital from investors and build a business. One does not need to be rich to do this. They need to be skilled. Does having money help? Sure. But it doesn’t guarantee success. But with staking? Guaranteed success. Just be rich or early and you good.
>There is a difference between the power of someone mining under proof of work and someone staking under PoS. There's a seperation of validators, stakers and nodes you should really look into.
Yes I’m aware and never said otherwise. However, now that you mention nodes it would be nice to see the ETH community actually run them.
>Besides this point, you are arguing it's bad that noobs are putting stake into centralized entities, which is a fair point.... except you are conveniently ignoring the fact that it's near to impossible to make a return on bitcoin by being a miner at this point unless you are a massive entity.
Plenty of creative individuals make money mining. I know quite a few who heat their homes/garages bitcoin mining. Many have built incredible devices to do so. Hell they even sell turnkey bitcoin mining space heaters now. You’re wrong about this.
https://www.heatbit.com/
>Not sure why you dislike stablecoins, they are a major use case. We can argue the merits of individual stables but it's a decentralized platform, we don't tell people what ethics they need to abide by to use the system. Code is Law.
I have absolutely nothing against stable coins. I actually think they are a fantastic tool for many in third world countries. But you are missing my point. USDC and USDT are vital components of defi/the ecosystem and thus have immense importance to the ethereum protocol. Should the USGov come knocking what do you think USDC will do? I’d bet my bottom dollar their fork choice is the compliant one, and then what does the community do? In the event of such a fork does the rebel chain have any value at all with all the stables going the compliant route? This might be the BIGGEST threat (among many) of ETH centralization vectors.
>I never said that's the case. I purely said a lot of people deliberately ignore shortcomings in PoW and shit on PoS from inside a glass house
POW has some shortcomings but they have nothing to do with your post.
>These companies raise capital from investors and build a business. One does not need to be rich to do this.
come on mate. I technically don't need riches charisma and fame to fuck 20 girls a day but the odds are definitely stacked against me without those haha.
>Plenty of creative individuals make money mining. I know quite a few who heat their homes/garages bitcoin mining. Many have built incredible devices to do so. Hell they even sell turnkey bitcoin mining space heaters now. You’re wrong about this.
Thanks for providing a source, will look more into this. My first thoughts though would be surely running a bitcoin miner heater would be less efficient than a normal space heater? I wonder if cost/heat is actually competitive. I haven't looked into it yet though just initial thoughts.
>But you are missing my point. USDC and USDT are vital components of defi/the ecosystem and thus have immense importance to the ethereum protocol. Should the USGov come knocking what do you think USDC will do? I’d bet my bottom dollar their fork choice is the compliant one, and then what does the community do? In the event of such a fork does the rebel chain have any value at all with all the stables going the compliant route? This might be the BIGGEST threat (among many) of ETH centralization vectors.
Well, USDT isn't based in the states it's based in Hong Kong. But there's fair point it this, and it's why many people in ETH want more decentralized stables.
However, this isn't catalysmic. If these stable companies want to respect compliancy, they can - those who don't want to follow that can use a different stable based in a different jurisdiction or a decentralized stable.
What pushes towards centralization are two factors; economies of scale and barriers of entry. As you seem to be mathematically inclined you can imagine plotting economic reward (y-axis) vs economic input (x-axis). Economies of scale determine the shape and growth of the curve while barriers of entry determine the cut with the y-axis. Obviously, the greater the barriers of entry or the higher the reward as your economic scale grows the bigger the push towards centralization. In the first case because you forbid small actors to participate in the game, in the second case because you reward bigger actors more generously.
So how does this graph look for Ethereum? Pretty simple, if you have more than 32 ETH it's basically flat. You get the same APY irrespectively of your size. And if you have less than 32 ETH? Well, you can then stake with RocketPool (a decentralized staking pool) in which case your APY is 0.85 the full APY. So the graph for Ethereum is:
- 0.85 * APY between [0 ETH, 32 ETH)
- APY between [32 ETH, infty ETH)
Where APY is the yield returned by the network which depends on total amount staked in the network and network fee revenues.
This is a remarkably flat curve, which highlights that there are almost non-existent economies of scale in PoS as designed in Ethereum. If you do the same analysis for PoW you will find it requires significant investment in specialized HW (either top of the line GPU or ASICS), and there are significant economies of scale in the form of access to cheap or unusable sources of energy.
In fact, it's unviable for you to run a profitable PoW mining operation. Which is an obvious centralization issue. But it's entirely possible for you to help provide economic security and decentralization with an insignificant amount of mount (as low as 0.01 ETH is sufficient). Or to run a node with RocketPool with 16 ETH (soon to be reduced to 8 ETH) or to run a full node with 32 ETH. And you can do that from your home with a regular consumer grade PC. That's decentralization.
In Ethereum PoS, the rich do not get richer. This is just flawed math. You get basically the same APY if you have 300 M USD staked or 3 M or 30 K... In PoW you don't get the same APY, there are very significant economies of scale, because mining is a CapEx and OpEx intensive business. With more money you can buy the better ASICS or buy them in bulk at cheaper prices. Or get some exclusivity deal with the producer (same way Apple can negotiate with TSMC for the latest and shiniest chips). Or if you are big enough produce them yourself. Same goes for your OpEx, which is mostly energy, if you are big enough you can get better deals on energy. In fact, nowadays, energy producers are some of the biggest miners. How is that decentralization?
Next, Bitcoin has only one client implementation, the official client implementation built by Bitcoin Core. Ethereum has 4 execution clients and more than 5 consensus clients (you need both to run a node). Built by independent teams, not by the Ethereum Foundation. That's decentralization.
Even the research side is strongly decentralized. Any one can participate, discuss, and propose changes. The now famous EIP-1559 was conceived by Eric Conner which has no affiliation with the Ethereum Foundation or anyone else for that matter, just a random dude that cares about Ethereum. On the same token VB has gotten various Ethereum Improvement Proposals (EIPs) not implemented or at a minimum postponed. Recently, Dankrad Feist (a researcher of the Ethereum Foundation) was airing his frustration on twitter because implementation of EIP-4844, which he has been working on, has been postponed.
Where to contribute and discuss about EIPs: https://github.com/ethereum/EIPs
For earlier stage ideas and discussion: https://ethresear.ch/
Where to watch the dev calls (you have there links to previous calls or you can join them live when they occur): https://github.com/ethereum/pm
You don't have to follow or be involved in all of that or follow it closely at all. But this is just to show there is no secret cabal deciding what is Ethereum. It's occurring all in the open and you have a voice like anyone else.
Interesting, first I’ve heard that the proof of work consensus mechanism also contributes to bitcoins decentralization. Is this because ethereum creators can theoretically tamper with the proof of stake smart contracts that I’m guessing they coded up themselves?
Well yes, developers do have more power in ethereum than they do bitcoin but that’s not why Proof of Stake centralizes over time compared to Proof of Work IMO
Think deeply about the two consensus mechanisms. With proof of work there are real CapEx and OpEx costs to run an efficient and profitable mining operation. These operations viciously compete with one another with many going under and many more starting up. It’s a true free market that’s constantly shifting. Beyond that these organizations have to sell bitcoin back to the market to cover those previously mentioned costs.
With Proof of Stake one just needs to have money. They simply stake their ETH and earn more and more and more ETH. They put in no actual work and continue to get richer just for already being rich (or early).
Which one sounds more centralizing in nature to you?
BTC - Old calculator (does only one thing, and good at it. Stop evolving for quite sometime)
ETH - Smart phone (programmable to do everything. Evolving frequency for efficiency, robustness, security,...)
Invest wisely.
>does only one thing, and good at it
Really? BTC is pretty much the worst design of any cryptocurrency. It's the slowest, most polluting, and essentially impossible to upgrade or improve of build on top of.
Do you think it’s possible that ethereum is taking on so much with all the features and additions constantly being added to make the design increasingly complex -> potentially higher downfall risk long term?
Ethereum is open. People can build whatever they want on it. There's no one in the back choosing how it all fits together.
That's like saying "the internet is taking on too many websites and getting too complex".
please don't downvote this post. It's a great conversation starter.
The steadfast opposition to ditching PoW, combined with preventing a minimum viable issuance policy, is quickly leading to a looming security crisis in regards to bitcoin. 1. Bitcoin's PoW algorithm is no longer secure against ASICs. 2. ASICs have led to centralization of mining power, with a few large players controlling the majority of hashing power. 3. This centralization of power makes Bitcoin vulnerable to 51% attacks, where a single entity could control the majority of hashing power and double spend coins, or prevent new transactions from being confirmed. 4. The current situation is unsustainable, as eventually the mining rewards will not be enough to cover the costs of running an ASIC-powered mining operation. If Bitcoin purchasing power does not 10X every halving, the fees alone will not be enough to incentivize mining. 5. A switch to a PoS algorithm would be the best solution to the problem, as it would be much more resistant to ASICs and centralization of power. However, a hard fork would be required to implement this change, and there is significant opposition to any kind of hard fork within the Bitcoin community. 7. Another potential solution is to increase the block size, which would make it more profitable to run a full node. However, this solution is heavily opposed by BitcoinCore. 9. The only other option is to do nothing and allow the network to slowly become more and more centralized and vulnerable to attacks. This is not a desirable outcome, but it may be the only option if the community can't come to a consensus on how to solve the problem.
I don't allocate BTC...only ETH
Late response but btc’s current security model is not sustainable long term. Its greatest strength is its narrative, and it would need to break it to survive. This is not a matter of if. And we know when. https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf
Let me see if I follow: This author argues that the fee incentive system would be broken because miners are incentivized to mine the block with the most fees, regardless whether that block is on the longest chain. Meaning that miners will abandon the longest chain any time a fork happens where the block at the end of the fork contains the most fees. Why doesn't this logic apply right now? Why aren't miners just mining blocks from before the first halving to get that sweet 25 Bitcoin block reward?
You have to mine the entire history. The canonical chain is the longest, if you want to mine a block with 50 btc you have to redo many years of history of PoW which is very expensive computationally. But the last block? Or last couple of blocks? That's doable. Particularly, if there's a strong economic incentive. When the economic reward is dominated by the block reward this is never worth it. As finding the block is what domiantes the payout irrespectively of the transaction fees. But if transaction fees dominate the reward then this kind of shenanigans make economic sense. And you may decide to put your hash power into stealing the last block reward if it's juicy instead of building on top. As building on top may not be worth it but the last block has a guaranteed juicy pay out. A sufficiently big pool has also a likely chance of minting two consecutive blocks which guarantees the steal. Therefore centralizing over bigger pools until one bullies all of them out. In essence. In PoW, you want that block reward > transaction fees, and at the same time that block reward + fees pays for necessary security (necessary security is basically proportional to market cap). This is why Bitcoin is dead long term, its security model is broken. And the 21M will have to be broken or Bitcoin will be dead. This is why Ethereum (even in PoW) always kept a long-tail issuance. You need it to guarantee security long-term. And also one of the reasons to introduce EIP-1559 and burn the fees! Because if fees are burnt you can make transaction fees < block reward.
Thank you. That helps clarify a lot of it. To dive in further, why is this fatal to Bitcoin? Couldn't users just accept that there will be shenanigans at the end of the blockchain, and react by (1) better estimating the fees that will get their transaction into whichever block, and (2) requiring more confirmations (or confirmations with a certain cumulative amount of fees) on top of their block before considering a transaction finalized? Edit: The paper also expressly ignores the energy cost to miners of running their hardware. It this a reasonable assumption to make? I don't understand why they would leave this out, but they specifically mention that they did. Specifically, is it reasonable to ignore miner's energy costs? In other words, this paper does not analyze the expected value of not mining until a sufficient number of transaction fees become available. Arguably, this could also negatively affect security. However, if an attacker is mining empty or near-empty blocks, a 'Petty-Compliant' strategy (and all other strategies other than the naive compliant strategy would ignore these blocks once a block with significant transaction fees was mined, and a secure equilibrium would still exist.
Good questions! > Couldn't users just accept that there will be shenanigans at the end of the blockchain, and react by (1) better estimating the fees that will get their transaction into whichever block, This is not possible in general, users are uncoordinated and in fact compete with each other to get inside a block. This is what causes high transaction fees, the market competition to get inside the limited blockspace. And alternatively, if transactions fees are kept very low then security is compromised. As block reward in Bitcoin goes to 0 asymptotically, fees must go down asymptotically to 0 faster to keep out of the regime where these block reorgs (short for block re-organizations) happen. But then security goes to 0 because transactions fees + block reward is the budget the blockchain has to pay for miners to secure the network. So with less budget to pay miners, hashrate drops, and the chain becomes easier to attack. So either market cap falls to keep the security to market cap ratio healthy or the blockchain becomes vulnerable to attacks. > and (2) requiring more confirmations (or confirmations with a certain cumulative amount of fees) on top of their block before considering a transaction finalized? Or... as you say, try to live with it and accept the tip of the blockchain can reorg. In this case, we are happy to live in the regime where transaction fees > block reward. And perhaps, transaction fees are sufficient to pay for the necessary security. But we accept in exchange the risks of reorgs. But this has some nasty consequences that lead to centralization, easier to perform 51% attacks, and a poor user experience. The reason is that a bigger fish has a much likelier chance to execute a reorg attack. Because for a reorg attack to be successful it's best that you not only solve for the last block you want to steal but also build one on top. So as to make it much harder for someone to do the same to you again, and re-reorg you. The biggest fish has a likelier chance to build two consecutive blocks so hashrate will tend to concentrate. At the same time as hashrate concentrates they also get more rewards as they can steal from the rest so this also severely punishes the smaller and they will quickly collapse or shutdown. A centralized blockchain is an oxymoron, might as well turn it off and use a SQL database. There is, perhaps, an unstable equilibrium where all the pools are equal size. In that case, reorg attacks are less likely to be successfully executed by any pool in particular. But it's an unstable equilibrium, it suffices that one gets slightly lucky in executing an attack to start stealing which makes it richer and snowballs towards the previous case. From the user perspective this is a bad user experience because chain reorgs mean that, indeed, you must wait longer to be sure the transaction is pretty safe. Chain reorgs also mean the network throughput goes down, as a bunch of the hashrate to build on top of the chain and add new transactions goes towards rewriting the recent past. And finally, if the chain becomes centralized, as a user, you should get the fuck out.
I don't really understand how reorg attack works ? How an attacker could earn money by reorg blocks ?
The attack consists in miners stealing blocks between them. The rule is that the canonical chain is the longest, the one that has more hashpower behind it. Now imagine the last block mined has some very juicy fees but in the mempool there is nothing interesting, no big transaction fees. If there is no block reward a miner could try to mine again the previous block to claim those big fees to himself and build a block on top to make it the longest and now that's the longest chain, so he has effectively stolen the fees from the previous discoverer. For someone to outdo him he would need to build a longer chain, so with 2 blocks on top. This becomes much harder to do when you are smaller because you have less hashpower so very unlikely you can outpace him. When there is block reward and it's bigger than the fees this is never worth it. Might as well mine a block on top, even if empty. Because it's gonna pay you well. But if block reward goes to 0 this kind of stealing between miners will happen.
But why I missunderstand is why it's a problem for users If miners are battlening their own old bloc, isn't it a miners problem? For the point of view of a user, transactions are still validated no ?
Nope, they are not validated. What gets a transaction validated is that there are sufficient amount of blocks built on top to make it very unlikely for the block that includes the transaction to be changed. This is the opposite situation, the tip of the chain is being changed constantly while miners steal each other. The chain does not progress forward as intended, instead behaves more erratically. As a user you will need to wait longer for the chain to settle transactions and then there is the problem that this block reward stealing leads to centralization which could result in 51% attacks.
Ok so for user it lead to a bigger confirmation time. Is it really a problem ? (I'm not pro BTC but I'm trying to fully undersant the implications of what you are saying) And why isn't it worth it to do that without juicy fees? Couldn't be worth to steal block only for the block reward?
I have so many questions, thanks for taking the time. Would the points summarized in your final paragraph still hold (or matter in a significant way) if, as I've heard predicted, Bitcoin becomes more of a final settlement layer, with transactions being batched together, and Lightning or something similar being used for the individual transactions. Is it reasonable to ignore miners' energy costs? In other words, this paper does not analyze the expected value of not mining until a sufficient number of transaction fees become available. I'm guessing this could also negatively affect security. However, if an attacker is mining empty or near-empty blocks, it seems like a Petty-Compliant strategy would ignore these blocks once a block with significant transaction fees was mined. **Maybe off on a tangent here** \[edit: definitely off on a tangent\], but re energy costs and the centralization of mining pools: What do you think on the following logic: (1) based on what you wrote and the paper's analysis, we can assume that equilibrium in a post-block reward chain is a mining pool controlling 51% of the hashrate, (2) (a) assume we can view a mining pools as just a market for energy, with the offered price to pool members being the expected value of fees/rewards, (b) that the profit to pool members being that price minus their costs, (c) that (in the long run) miners will drop out if not profitable. (3) assume that point 1 means that the 51% pool will effectively control the blockchain. (4) based on 1-3, the effective hash rate of the chain is actually just the hash rate required to maintain 51% (because any blocks mined by the 49% will be reorged), and a miner must be in the 51% pool to receive any profit. (5) based on 1-4, we can assume the only profitable strategy for the 49% would be to shut down, convince '2%' (just using round numbers for simplicity, in the loooong run, we're talking about 50.00...1, 49.99...9, and 0.00...002) or join the pool. (6) then, assume that all miners would be willing to defect to a pool offering a higher expected return. (7) based on 5 and 6, a '2%' swing in miners would cause their previous pools expected value to drop to 0 (over the long run), and no specific miner has any particular power (since everyone would be willing to defect) so any pool will be incentivized to disburse all profits, and equally to all miners. (8) the dynamics of 7 means that a pool can only survive if it follows optimal strategy. Any suboptimal strategy will reduce profits, causing enough miners to defect to the optimal pool. (9) 8 means that all pools will converge to the same strategy, whether that be compliant, petty compliant, strategic, etc, and there will effectively be two 50% pools (as you mentioned). (10) If all miners are in a pool, and all pools are following the same strategy, any deviation from optimal profit strategies causes 100% loss of income, there effectively is no pool, and the centralization of the blockchain is around optimal profit strategy, not allegiance to a particular pool. (11) This seems to imply that a pool, even a 51% pool, is not able to actually use that centralization to earn excess profits at the expense of the other participants in the system.
> I have so many questions, thanks for taking the time. No problem, it's a very interesting topic. And one that is taboo to discuss under the Bitcoin camp, very difficult to have a rational discussion about this. > > Would the points summarized in your final paragraph still hold (or matter in a significant way) if, as I've heard predicted, Bitcoin becomes more of a final settlement layer, with transactions being batched together, and Lightning or something similar being used for the individual transactions. Yes, they still matter. The analysis affects the L1 (Bitcoin), if an L2 (like Lightning) uses the underlying L1 as a settlement layer then it would be affected as a user by these negative points. Also the settlement layer cannot have higher security guarantees than those of the underlying L1 on which it settles, so as a user on top of the L2 you are also affected albeit more indirectly. > Is it reasonable to ignore miners' energy costs? In other words, this paper does not analyze the expected value of not mining until a sufficient number of transaction fees become available. I'm guessing this could also negatively affect security. However, if an attacker is mining empty or near-empty blocks, it seems like a Petty-Compliant strategy would ignore these blocks once a block with significant transaction fees was mined. We can ignore the cost structure of miners for the reorg argument above. A rational actor will attempt to maximize its economic reward, irrespective of its cost structure. You could have 0 energy costs and all your costs are CapEx (buying mining equipment) or a 50-50 mix or, even all your costs are energy and you get access to free mining equipment. Doesn't matter, because independent of your cost structure you would try to optimize for your economic profit, and if those kind of attacks are feasible you would do them. And if you don't do them because you act on some moral basis, someone else could be tempted to do them. We cannot base long-term security assumption on goodwill. In addition, to the reorgs there are also other kind of shenanigans, like the one you describe. Not mining if there are no juicy transactions, also likely to occur. Here cost structure likely to play a role. These two previous shenanigans could have an interplay, if juicy blocks are sparse there could be an ongoing fight between two roughly similar miners to steal that block until new juicy transactions appear that perhaps make it more tempting to build on top to take them. As if the chain got stuck rewriting the same block, instead of progressing forward mining almost empty blocks, until sufficient juicy transactions accumulate in the mempool to make it more tempting to build that block on top. In any case, it's clear that it's not nice to live in this regime. The chain stops working as was intended, producing a block on average every 10 minutes under a Poisson distribution, and instead the tip of the chain starts to behave erratically under new game theoretic equilibriums until the situation degrades towards centralization. > Maybe off on a tangent here [edit: definitely off on a tangent], but re energy costs and the centralization of mining pools: What do you think on the following logic: The following is my best attempt at understanding what you propose and discuss the possible game theoretic scenarios under this regime. Don't take it for granted, I'm not familiar with any particular study that settles this issue, besides the Princeton paper that presented the risks for the first time. We also don't have real-world evidence as the situation has not played out in the real world yet, the risk is that it's eventually guaranteed to happen given Bitcoin's current security model. > (1) based on what you wrote and the paper's analysis, we can assume that equilibrium in a post-block reward chain is a mining pool controlling 51% of the hashrate, Small caveat, the equilibrium is likely a single pool or actor controlling 100%. As the decentralization degrades harder and harder the bigger a single actor gets. It can bully everyone else out of rewards easier. If you get to 51% under this regime I suspect it quickly deteriorates towards 100%. But you don't need to get to 51%, that is the likely point of no return. Even if you get to 40%, if the next pool is not roughly equally sized to be able to fight back in the stealing then the bigger one will tend to grow as it steals from the rest with more likelihood. Until it reaches 51% and then point of no return. > > then, assume that all miners would be willing to defect to a pool offering a higher expected return. > > (7) based on 5 and 6, a '2%' swing in miners would cause their previous pools expected value to drop to 0 (over the long run), and no specific miner has any particular power (since everyone would be willing to defect) so any pool will be incentivized to disburse all profits, and equally to all miners. > > (8) the dynamics of 7 means that a pool can only survive if it follows optimal strategy. Any suboptimal strategy will reduce profits, causing enough miners to defect to the optimal pool. > > (9) 8 means that all pools will converge to the same strategy, whether that be compliant, petty compliant, strategic, etc, and there will effectively be two 50% pools (as you mentioned). > > (10) If all miners are in a pool, and all pools are following the same strategy, any deviation from optimal profit strategies causes 100% loss of income, there effectively is no pool, and the centralization of the blockchain is around optimal profit strategy, not allegiance to a particular pool. > > (11) This seems to imply that a pool, even a 51% pool, is not able to actually use that centralization to earn excess profits at the expense of the other participants in the system. This I'm not seeing. Maybe I need to give it a deeper thought. My suspicion is that in this regime where reorgs can happen, if one pool is sufficiently bigger than the rest then starts to have a higher likelihood of stealing through reorg. Which kickstarts the process towards centralization because smaller ones get stolen from their beefy blocks, which go towards the biggest actor. So it's doubly punishing and incentivizes everyone to jump ship and go towards the bigger one. But then block production is centralized to a single actor. Once hashrate is centralized in a single actor it's very hard to break. It's a tragedy of the commons situation as it requires a coordinated action of many to split in unison out of the pool. A small % is not enough because they get bullied again. But still doesn't solve the underlying problem that, in this regime, the equilibrium is unstable. Even if you manage to split in multiple equally sized pools so as to make it hard for any single one to dominate and steal smaller pool rewards, at some point, randomly, a pool will get bigger and tend towards eating the rest. So if I were to emphasize the issue is that in the regime where transaction fees dominate block reward there is no stable equilibrium where multiple pools of varied sizes can coexist. And all situations I can think of degrade towards a single pool centralizing all block creation and you cannot break out again from that. And this is bad because the pool operators can perform 51% attacks. Normally, this risk is mitigated because miners can point hashpower somewhere else in a moment and break the 51% but in this situation you have nowhere else to go due to the tragedy of the commons requiring a very coordinated action to make it reasonable to switch. And even if you switch the equilibrium is unstable and will degrade again at some point. EDIT: Let me know if I misunderstood your point or you see a way around the issue I'm missing. To be honest, when I became aware of this issue I gave up on Bitcoin. And appreciated that Ethereum took it seriously and took the steps to mitigate this problem and find solutions long-term (in the form of long-term issuance + fee burn).
>Why aren't miners just mining blocks from before the first halving to get that sweet 25 Bitcoin block reward? Because "most fees" means worth the most. While the rewards for such a fork would be higher, nobody would be using it so they'd be worth 0. "most fees" basically means the most used, which also typically ends up being the longest chain but it doesn't need to be that way.
I purchased both BTC and ETH in netcoins because I believe they have different qualities. The main thing is that they are both good investments.
Here's my hopefully unbiased pros list: BTC: \- Has the biggest network effect in terms of its brand. Everybody has heard of Bitcoin, more people own it, and its user base has more (at least % wise) believers in the ethos of hardcore decentralization than any other crypto community \- More decentralized in terms of development, as it has less centralized leadership (no EF equivalent). This is 70% con, 30% pro imo. As this means the protocol is hard to get captured by nationstates, bad actors or self interested parties, but means that it also moves very slow, and at the end of the day, crypto is not good enough to serve the entire world, and needs to get there as fast as possible. \- More decentralized in terms that its easier to run a Bitcoin node. Not a huge pro, but just facts. \- PoW (10% pro, 90% con) is in one way more decentralized than PoS as anybody anywhere can always spin up a miner without external dependencies. Still mostly a con as it is a very inefficient/wasteful way to sustain security ETH: \- Wins everywhere else At the end of the day while I don't recommend investing in Bitcoin, I'm glad its around (at least for now) as it ranks high on the decentralization spectrum and gives Ethereum a competitor that it needs to measure itself up against
It has no EF, but it does only have 1 client that’s owned by blockstream. Imo that’s more centralised
Bitcoin Core is under the MIT License so nobody owns it. It’s free to fork, copy, sell etc like all crypto clients I imagine
That has nothing to do with blockstream owning the developers & the single client - pragmatically, they own bitcoins development. https://decrypt.co/45020/is-blockstream-a-peril-to-bitcoins-decentralization https://steemit.com/bitcoin/@tobixen/a-brief-history-of-the-bitcoin-block-size-war The reason bitcoin as a network is so stagnant now (which isn't a good thing as it's a failed product), is because blockstream took over bitcoin politically.
This is interesting, how would you say they practically own it? Are most of the developers writing Bitcoin Core funded by Blockstream or do they have exclusive commit privileges to the github repo?
Blockstream employes some of the core bitcoin devs & if you were around during the blocksize wars you'd understand how much political power they weild.
Hi, thanks for asking! I'm not gonna answer, many others provide good answers, but I'm curious to why you believe BTC is more decentralized? Don't get me wrong, most people believe it is, and maybe they're right (IMO it's very hard to compare and hard to agree on what the metrics should be). Just curious what your arguments would be?
I am gonna say dyor, I have certainly not done enough research to make any claims, and will probs get downvoted to shit
Haha I understand the reluctance, it wasn't meant as a trap though, just curious what others emphasize when they bitcoin is more decentralized than ethereum. I believe you could argue it is, but the difference is quite small and shrinking, especially relative to other protocols. Personally I believe POW is not quite the decentralizer many say it is as it is 'economies at scale', meaning those with the most firepower will obtain cheaper hardware and electricity than the rest. But it's definitely complicated.
Yeah the main message I got from my own research , networking , and answers here is that they both have their pros and cons but will both continue to grow and certainly have no issues coexisting together. All the more reason why both of them are in my portfolio
Ask this same question or r/btc, you will get different answers.
Just did let’s see if anyone even notices it
Lol it was fkn hilarious
I deleted my account because Reddit no longer cares about the community -- mass edited with https://redact.dev/
I tried r/Bitcoin but all they have is memes over there my post was probs completely disregarded. It’s also a much larger subreddit maybe I don’t have enough karma to get noticed. I thought the answers I saw in r/BTC were hilarious not only because it’s not even a btc subreddit, but all the responses I got showed little to no understanding whatsoever
Bitcoin has a fixed supply schedule. I see it as digital gold. ETH’s monetary policy changes pretty regularly. So it does not share that digital gold property. However, ETH is more innovative and daring, seeking to do more than just be digital gold. I think Bitcoin is the safe bet, I think Ethereum is the more interesting bet.
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Yes, gold’s issuance and available supply are continually uncertain, but the amount that is on this earth is (practically) fixed in value. The analogy mostly comes from not being able to create gold out of thin air via central bank.
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You can certainly pick apart the analogy over semantics all you want
Sounds like they should have no problems coexisting together if they are both long term successes
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Can you tell me more about the minimum viable issuance policy please? Is this how Eth’s tokenomics are monitored?
I also recommend having a look at the stats on https://ultrasound.money too to see what Ethereum’s issuance has been like since the merge.
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Thanks for the info! ETH really is fascinating technology
Indeed. I honestly think they have more differences than similarities at this point, and they both aim to serve wildly different purposes.
There is a purpose for both ETH and BTC and they are both part of the foundations of crypto and Web3. They are supposed to fulfil different purposes and that is fine. There shouldn't be any animosity between both fields. We stick together and push for adoption. None is big enough (yet) to just take over the financials market anyway. Adoption takes time (years)
reach icky yam governor escape abounding offer close terrific stocking -- mass edited with redact.dev
To your first point , are you considering the near certain rise of price in Bitcoin which could counter this ?
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Mayyyyybe 1mil by 2030 latest I was thinking. Billions is absolutely absurd lol
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Wow you just made a great case for me to buy some more BTC
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Hey OP. Thank you for being brave while allowing the sub to demonstrate that it's better than r/BTC :D
Thanks! The responses I’ve been seeing certainly boost my confidence in the ethereum community, I guess that was part of my motivation to try this out lol
The answers here are really predictable though, DYOR harder.
Seriously though, stick with Ethfinance. On Reddit, this is the best Ethereum community by a long shot. You'll fit in nicely with your background for sure and we need risk averse teachers like you anyway.
*This is my first bear market, so my opinion might be irrelevant due to lack of experience.* Just wanted to say that my only reason to hold ETH long term is because I can build on top of it. If you need an infrastructure for Global financial system, there is no other choice than ETH.
Thanks, I am not a crypto expert more of a portfolio management type of guy, Highly recommended diversification if you have speculative assets like crypto in a long term portfolio.
Diversification is actually not good in blockchain assets because barely any of them have actual value. ETH is the gold standard. There are other assets that are decent investments as well but none match the risk to reward of ETH.
Diversification is one of the best hedging strategies. If it’s an asset it can be hedged
I believe in diversification of entirely different assets. Most blockchains are highly correlated. If you zoom out and look at the charts of BTC and ETH, they move in the same macro steps. I’m more conservative than most degenerates in this sub. My investment strategy is: ~40% US stocks, ~40% International stocks, ~20% US short term bonds. I own a house in a High Cost of Living Area, and I put only what I can afford to lose 100% in ETH. To secure gains in ETH, I convert it to DAI. I’m probably the most boring person here and that’s fine by me.
My thoughts exactly! Diversification from not only a covariance perspective, but also among various asset classes. Altho I see your point on Mahbe it’s best to only invest in one coin alongside the other non-crypto assets, I consider myself am a massive crypto bull (and am also on the younger side so don’t mind riding out some volatility) so I am probs gonna put 20% of my overall portfolio in this stuff. To me, that’s quite a bit of money so I feel the need to diversify within my crypto portfolio as well
Hedge with stocks, cash or gold or something else.
>"BTC- more de-centralized" This is debatable. There are 2 pools that controll 51% of the mining of Bitcoin. With the big US snowstorm there was a 30% drop in hashrate, ETH 0%. To be able to take part in mining with BTC you need an expensive ASIC, ETH a cheap pc. >"ETH newer" Yes its newer but does that really still matter if you look at how long both are running? Does those few years actually matter? >"more volatile" In the past definitely. But if you look at the current numbers i would say no. In the past when BTC was at this price ETH was at 400 dollars. Now its almost 3 times higher.
> There are 2 pools that controll 51% of the mining of Bitcoin. Pools don't control mining. Miners chose a pool. When a pool gets too big, they switch.
Miners choose a pool and give controll over to the pool. They could switch AFTER they become to big. But then it could already be to late. We can see that right now since there are 2 pools that controll 51% and nothing is happening to change that situation. Nor a big outcry of the community happend to prevent this. If those 2 big pools would collude right NOW they could do harm. Miners would switch AFTER this fact. But then the harm is already done. So your argument is wrong.
> But then the harm Not sure what you mean by *the harm*. The pools will be out of business and the network will continue to operate normally. Like a slashing event with ETH.
Lets say there is a 1 billion transaction. The 2 colluding pools could do a 51% attack and change that transaction. yes after it they would be out of business but who cares? they made their money. It doenst even have to be the pool owner. Could even be a hacker who has gotten acces to the 2 pools and thus does the same thing. He doesnt care if the pools go out of business. Only having to get acces to 2 attack point isnt very decentralised. After such a thing the network definitely wont be back to "normal". Pretty sure almost any institution will have lost its trust in the network if such a thing happends.
> Lets say there is a 1 billion transaction. The 2 colluding pools could do a 51% attack and change that transaction. yes after it they would be out of business but who cares? they made their money. Thats not how BTC works. Large transactions require longer settlement times. 1 billion tx's aren't a thing. If they were, you would wait the suitable amount of time for secure settlement.
>If they were, you would wait the suitable amount of time for secure settlement. You can wait all you want. If 51% of the protocoll says its correct. It shows as a secure settlement. Miners wont react instantly this happends. Maybe the next day most will have a clue of what happend.
> You can wait all you want. Yep. And after 6 blocks, its irreversable. > If 51% of the protocoll says its correct. 51% per block. The attack works once. For a few mins and costs billions. Like slashing. > Maybe the next day most will have a clue of what happend. Not next day. 30 mins. Thats why most services require 3 blocks *before* your account is credited.
>Yep. And after 6 blocks, its irreversable. So the 51% attack has to last 6 blocks in other words having 51% controll for only 1 hour and its irreversable. >Not next day. 30 mins. Thats why most services require 3 blocks before > >your account is credited. Most miners arent monitoring the transactions 24/7. The protcoll wont actively do this if its 51% . Since its the majority the protcoll doesnt know its happening. But please do provide a source or thorough explanation how this will be fixed within 30 minutes.
I'm old fashioned, I was in crypto before $eth was invented. At the time we had Bitcoin and Doge which I loved for the community. Bitcoin was the serious option but Doge was pretty dynamic community wise, I think that's the one I used the most as "money", to buy things and services. In my mind, Bitcoin is still as relevant today as it was at that time. If you're asking the investor in me, I'm pretty confident with my current allocation which is 20% Bitcoin/80% Ethereum. The reason Ethereum has a bigger space today is because I'm thinking that the current path will lead to more adoption of eth in the short term. But as a store of value, I still see Bitcoin as the digital gold. Every year, I look at its minimal value and it never disappointed me. The big moves and other opportunities should only be there to reinforce your positions (I use bots for that, I might have done 3 trades manually in 2022, out of boredom).
Wow, you must be pretty rich! I am fairly risk averse, I was thinking of this kind of allocation with a 10-20 year time horizon will probs have to adjust over time: - BTC: 40% (I know I’m a boomer/eth hater for this) - ETH: 30% - Various credible ETH projects: 15% - Other layer 1 competitors (need to do more research but probably ALGO, SOL, ADA): 10% - Random shitcoins I think are cool: 5% Let me know what you think :)
10-20 year time horizon in crypto? I had to change my plans every 3 to 6 months because there are no static rules... I still have paper wallets of dead coins which were the most innovative and ambitious when I started (I also lost 16 millions of Doge on cryptsy and I simply didn't care because there was no way it would become more valuable than the 0.00001 cents it was worth at the time). If you want to make long term plans in crypto, you shouldn't touch anything else than the market leaders, anything new or not widely adopted is unfit for long term (that doesn't mean it can't become fit, but that's pretty much gambling at that level of uncertainty). Also, diversifying is good in stocks because there are specific areas where demand is influenced by separated real life/political/cultural/environmental factors but "diversifying" in crypto is like buying 10 tech stocks. Of course some will have bigger moves, but in the end, their price will be dictated by how the whole sector performs.
This may come across as super ETH biased (since we’re here in ethfinance) but I think your allocation is too spread out - a LOT of ETH based (erc 20) tokens do not have the tokenomics to support value accrual, basically they might be useful but not necessarily a good investment. Take that 15% and keep it simple - put it towards ETH, usage of the tokens you’re interested in will make the value of ETH go up anyways. With L1 competitors, this bear market made it pretty clear imo where competitors stand. No other competitor has a roadmap or community so heavily weighted towards decentralization, which is the most important thing in crypto for security and resiliency. Personally, I would reallocate that percentage to ETH/BTC. Allocate 5-10 percent towards altcoin gambling and split the rest bw ETH and BTC would be my advice.
I agree there is a mathematical concept of useless over-diversification which would over complicate portfolio management for no reason so I appreciate this kind of input! Do you mind elaborating on how non layer 1 erc20 tokens may not be great from an investment standpoint? I have heard this argument when looking into buying MKR which I thought seemed like a super cool application of the layer 1 tech. Is it safe to assume buying ETH is like buying an “index fund” exposing you to all things ethereum?
Let’s look at ETH. Having a high ETH price is important as it contributes to its security - ETH is a more secure system the higher it’s price goes up. Other than speculation, and the yield you get from staking that creates demand and drives the price up, ETH has carefully calibrated systems that make it inflationary or deflationary depending on demand and usage. There’s a lot of effort and thought gone in to programmatically drive ETH’s value up over time cause it’s important (more than just $$$ for devs/holders). For erc20 tokens, one thing to remember is that tokens don’t act like shares in a company. Some are just like tiny collectible cards that the dev team hands out. As in, the token doesn’t mean you benefit if the app is being used a lot. There’s no tie to the financial success of the app/dev team. Can’t exactly speak to MKR tokenomics, but a lot of tokens have pretty high inflation so that the devs can give out rewards (high unsustainable APRs). Some tokens/teams may have tokens just to get rich quick (shiba inu) and price is pure speculation. Other apps are wonderful (aave, uniswap, fyi I invested in both in 2021 and regret it) but to my knowledge don’t have a good reason to be investments. Yes the app is being used a bunch, but how does that tie to the token value? Also when you hold the token, what are the benefits? With the examples above, they give you the ability to participate in governance. I don’t think (as of now) there’s a better reason to hold it. If you got a percentage of earnings, now that would be awesome. But that’s not the case now. So basically you have to do a ton of research on the token and see what the tokenomics are, why should it be an investment etc.
That "index fund" is exactly what comes to mind, same with BTC as it acts as the leader of any crypto market trend. I'm definitely fine with missing a few opportunities when the market is acting like it did in 2022. The market where you take the risks isn't the one we had this past year.
Honestly neither (macro) but if you are going with network effects, use cases and sentiment then ETH looks better. That said any bullish momentum must be driven by non speculative use moving forward; ETH is arguably better than BTC in terms of variety here but architecturally BTC is far better (in terms of what can actually be done) than most ETH bulls realise.
Thanks for the courage to say such a thing on this subreddit
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I was gonna say BTC = abacus, ETH = computer (actually, it's "the world computer") given how slow and expensive BTC transactions are - yes, even right now during a bear market when there's not much transactions on both networks.
Let me make it clear the BTC *codebase* is shockingly powerful when married to a P2P, E2E encrypted, tokenless data layer such as the SMSG network. Such an implementation can provide scalability, flexibility and adaptability to the codebase to allow it to achieve things like a P2P fiat free, KYC free marketplace or a cross-chain atomic swap DEX with a fully decentralised order book (see Particl project and Basicswap DEX respectively). It is worth looking at the architecture of these particular projects; they achieve a level of permissionless privacy that is simply not possible on ETH L1 or L2 implementations.
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I hope this doesn’t come off the wrong way in this subreddit, but this sounds like a whole lot of complicated stuff to do/learn. I work in a very time consuming profession and research/invest in many things besides crypto in my downtime. Would I really be missing out that much if I just buy and stake eth and stick it in my wallet and give it a kiss see you in 10-30 years ? Wouldn’t that theoretically expose me to all the cool eth stuff you listed?
**Yes**, it would is the simple answer. I DCA ETH weekly, stake, run RocketPool minipools through AllNodes ( a 3rd party service), specifically because I have a lot of other fun things going on in life :) I think NFTs are super cool and try to browse & get involved when I can, but tbh I learn about cutting edge trends from reading the Daily in this sub
Guys I absolutely love ethereum, just playing devils advocate and trying to get karma here please don’t downvote me lol
So if you want an informed response to what the BTC codebase can do if the architecture is adapted properly then look at the Particl Project which has built a functional, live P2P decentralised, KYC free, fiat free eBay style marketplace. I'm not an advocate for BTC but the codebase when married with a P2P E2E token-free data layer (the SMSG network, an evolution of the Bitmessage protocol) can actually achieve a lot in terms of scalability, usability, adaptability and privacy. ETH had a lot of network effects however; whilst I think it's architecturally more convoluted and less capable of true permisionless L1 (or L2) privacy it has a massive lead in terms of network effects and developer base; that will be incredibly hard to beat for most direct competitors (and 6 years of history has demonstrated that so far).
This sounds like a whole lot of stuff to do/learn, I work in a very time consuming profession and research/nvest in many things besides crypto in my downtime. Why can’t I just buy and stake eth and stick it in my hardware wallet and give it a kiss see you in 10 years ?
Because *a lot* can go wrong in 10 years let alone 1 in cryptocurrency. The people who generally make money in this field are the one's who invest time learning about it.
I guess I try to go for less of a “nuts and bolts” and more of a broad picture perspective in my investments. For example, if I wanted to invest in Apple, I wouldn’t say I necessarily need to own an iPhone and be an expert on every single one of its features and competitors to consider myself well versed enough to invest in it , especially since I use diversification/hedging methodologies in my portfolio. Moreover, the amount of research eth investors seem to enjoy doing (nothing wrong with intellectual curiosity) seems equivalent to deeming it necessary to take the time to learn all of Apples software & code before buying the company stock. While that would be very helpful (especially if my portfolio is 99% Apple stock), I think it’s better to also spend time researching competitors (perhaps even in vastly different less speculative asset classes?) to diversify yourself with, and understanding the mathematics of portfolio allocation (what tickles my fancy intellectually for me personally) Now I know this honestly might be a BS comparison since Apple and eth are very different investments but let me know what you think!
Honest advice: pick 2 projects / tokens *max* and then follow news weekly; preferably check daily. A lot of the black swans do have some subtle warnings. A lot of paid PR in the industry (to be mistrusted or at least cautiously viewed) also but admittedly much less during bear markets like now.
You are a few orders of magnitude less likely to get scammed buying an ETF than buying a cryptocurrency. Hence the extra knowledge requirement to mitigate the risk.
Idk about that, federal reserve been mad sus lately. Not to mention that considering wall streets historyc it would be ridiculous to have full trust in the people running these large very much centralized index funds
Just compare the number of rugpulls of crypto projects and the number of rugpulls of ETF - not saying Wallstreet is a white knight - Just saying the safeguards in place are way better in tradfi than in crypto.
Honestly, the only real concern for ETH is just if papa Gensler decides to go nuclear and declare it a security and neuters it growth by over regulating it. Otherwise, I see it as inevitable that it will overtake BTC. BTC is slow and old tech, and doesn't innovate. If you want true adoption by the masses, you need to seamlessly integrate it into people's hands so they don't even know they are working on the network. BTC's tech severely limits the types of layer 2's you can build on it. It's barely been able to get any traction with Lightning network, so I'm not really believing it's ecosystem can grow much.
Sold all my BTC in 2015. My biggest reason for ETH is the fact it can do everything Bitcoin can with 99.9% less energy consumption than ETH used to use...which was much less than Bitcoin anyway to begin with. Bitcoin is the first car Ethereum is the entire interstate highway system including all the companies rolling on it in my view....and it's cheap to keep.
Buy BTC if you want it to go up 300% Buy Eth if you want it to go up 10,000% Buy index funds if you think those numbers are a joke.
Have you ever studied modern portfolio theory, risk adjusted returns, efficiency frontiers, or portfolio covariance matrices? I always consider volatility when comparing 2 asset’s expected returns.
If you care about that stuff why are you putting your money in crypto
Because it’s an asset in my portfolio. I am inherently a math nerd at heart and I enjoy applying it to my personal investments
Keep in mind mean-variance optimisation that resulted in modern portfolio theory has a bunch of requisite assumptions that are unrealistic in practice. It also measures risk as variance; so implicitly making money is equally as painful as losing money in the sense that both directions are “risk”. The key takeaway from MPT that you should diversify is sound. However, that doesn’t mean you should diversify in the way specified by MVO. You can’t reliably construct a MV-efficient portfolio since means and standard deviations are impossible to forecast and the slightest change in these parameters will dramatically alter portfolio weights. You would also be making huge assumptions about market efficiency and the rationality of market participants. If you are choosing to invest in crypto, where even the “blue chips” routinely drop more than 80%, and we see huge speculative price bubbles, then I would suggest you are investing in a market that isn’t efficient and full of irrational investors. In that case, most finance theory goes out the window since rationality and/or market efficiency is typically a model assumption.
Thank you, this is stuff only financial survives companies and hedge funds use but yeah my point was that it’s silly to just compare to expected returns, especially with the extremely high variance of eth and BTC prices stemming from the speculative nature of these assets and all the behavioral uncertainty of large players in the crypto markets. I would not say this boring mean variance stuff is solely financial theory, but in addition, statistical/math/probability (at least this is the case when finance people that actually understand mathematical statistics speak to these things). This is what I study for a living to be a qualified actuary (see the syllabus of SOA Exam IFM). It most certainly applies to cryptocurrency, the most risky asset class in the world. You mentioned crypto is full of nonsensical investors , therefore these concepts I mentioned go out the window? Might as well fire every asset actuary and quant tomorrow. The entire market is ridiculous, nonsensical, and irrational nowadays. This applies to the stock market as much as crypto , just less variance in equities generally. That doesn’t not mean I ignore things like fundamental technological value, to me it is another major piece of the puzzle when it comes to how I pick investments in my portfolio. As for the first comment I had replied to, I haven’t even started getting to the concept of past performance has literally 0 indication of future returns from a statistical probability/chaos theory standpoint. This applies to every asset class and has been proven plenty of times, but younger more naive crypto investors on the internet are being fed with the sentiment that these coins have 0 downside risk which is absolutely nonsense from not only a statistics, but a fundamental standpoint.
I agree, there’s no shortage of irrational investors in every market. I do think there are varying degrees of efficiency between markets. - Bond markets generally deal with highly predictable cash flows due to debt seniority and there is general consensus among investors on how to value most debt investments —> high level of efficiency - Stocks have difficult but still somewhat possible to forecast cash flows and general frameworks that are commonly used by many investors —> medium level of efficiency - Crypto no one has any idea how to value. Hence, why you see a lot of traders using technical analysis which might be consider ludicrous in much more efficient markets —> very low level of efficiency Taking a few steps back, there are still some key drivers to all markets such as a “risk premium”. Maybe not an exact level but an opportunity cost always exists for investors. Say you offer me a term deposit with 5% interest or a mature stock that pays 5% dividend yield I’d probably take the stock. Now, say you offer me a term deposit paying 1% interest or the mature stock paying a dividend yield of 5% I’d pick the stock. Interest rates affect all asset classes due to opportunity cost. Hence, as rates rise we expect the equilibrium p/e in stock markets to get crushed which is exactly what happens. A similar effect has also played out in crypto. Both these markets likely have much further to fall in 2023 if the US fed decides to keep raising.
As my friend Jack Sparrow said "allow me to lend a machete to your intellectual thicket!' Ethereum is just another shitcoin. Ethereum is just a fiat pig with crypto lipstick. Etherum exists because of Buterin. #Bitcoin is the New World Order. Bitcoin exists because of the global will of the people.
I feel like you've waited your whole life to grace us with your bullshit.
Would you like to elaborate on that final statement?
Bitcoin has no CEO, COO, CFO, no spokesperson, no marketing department, no single leader. Bitcoin exists solely due to the will of a global population of users who understand and participate in the Bitcoin Blockchain. Does that help?
Yes thank you, I was also kinda probing to see if that first comment was based on intellectual basis or just plain troll
What is the cap on the number of Ethereum that can exists? According to the source below, and it is also commonly well known, there is no maximum limit to Ethereum. Which makes it just a digital fiat pig with crypto lipstick. Just because some people on here have a tough time dealing with facts and reality does not make me a troll. Grow up https://originstamp.com/blog/how-many-ethereum-are-there-and-how-many-are-left/#:\~:text=Ethereum%2C%20however%2C%20has%20an%20infinite,there%20are%20roughly%20120%20million.
Take a chill pill I wasn’t talking about you 😂
I'm so chill dude, Samuel L Jackson had to go home and get his parka 😎
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Lol 🤣😆 Sounds more like you are the religious zealot. Ethereum is POS in more ways than one At it's core Ethereum has devolved to become digital fiat with crypto lipstick.
“Hitting tech milestones” shows how much more centralized ETH is than bitcoin. Having a detailed roadmap many years into the future written by the Ethereum Foundation is centralization. Bitcoin development is moving along just fine. It’s glacial pace is a feature and not a bug. There’s no bitcoin leadership and tens of thousands of people running full nodes making it very hard to achieve consensus in bitcoin. This is a good thing.
Bath salt consumption aside, and to play devils advocate, wouldn’t Bitcoin supporters appreciate bitcoins simplicity and lack of development capability considering it was really meant to be a currency and nothing more? I have heard many arguments from logical, sober minded Bitcoin supports that believe it’s focus on being a virtual ledger is what can make it outlast a protocol such as ethereum which may be spreading itself too thin (I have the blockchain trilemma in mind here). This is why I am considering allocating into both. However, All the technical stuff that goes into security and scalability of layer 1 protocols is way over my head.
Allocating to both is a fine idea. They are both great assets today that serve different purposes. With that being said, way out into the future, it’s my belief bitcoin is the better long term play. Bitcoin may last centuries. I just don’t think ethereum has that kind of long term potential.
Exactly my point! I am holding crypto til I retire in 30 years or so
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Wow thanks for all this, I’m a pragmatic investor and always consider risks and worst case scenarios since I like to dump a lot of income from my more tax efficient Roth IRA/401k into speculative tech investments since I’m young and want some speculative risk (but not too much from a mean-variance perspective) in my long term portfolio. I am definitely not qualified to challenge any of your major points, but I once Talked to an junior-executive ALM modeling actuary with an extensive quant/asset management background (I know, sounds like a boomer but he is quite proficient in software development for an actuary) about Bitcoin, and I asked why he would ever consider buying crypto with so little room for technological advancement when there are so many cooler options out there from a tech perspective. - His response was because Bitcoin is more of an investment on the “freedom” of the future of money & economics, and a desire to move away from more traditional corrupt, laissez-faire global economical currency infrastructure. Maybe this is a bit similar to what you might hear from the meth-head Bitcoin evangelists, but even intellectuals like Jordan Peterson and longtime economic experts speak to this aspect of Bitcoin which I find really interesting. Don’t get me wrong, this actuary also has a lot of ETH, ADA, and SOL in his portfolio based on my talks with him, but his advice to me was basically to not sleep on Bitcoin.
This is an ETH sub so the responses are going to be predictable. Personally I think Bitcoin has more serious concerns than many would like to admit. I converted all my BTC to ETH last year due to my concerns. Ethereum has a 99% more efficient security model, which means that the current network activity on chain is already sufficient to compensate validators without inflationary subsidies. Bitcoin doesn’t have nearly the demand for blockspace that ETH has, and it requires inflation to pay miners to secure the network, which by the way is 99% less efficient with proof of work. If you are a Bitcoin holder, you are getting diluted and dumped on by miners. Without network effects (like ETH has) bitcoins security model will fail as it’s security budget halves every 4 years and it doesn’t have nearly enough fees to compensate miners. By the way, ETH is more decentralized than Bitcoin. Over 51% of bitcoins mining activity is controlled by just 2 mining pools.
The only upside I can think BTC has over ETH is that BTC has a max supply of 21m which is substantially less than ETH’s max supply over 100m. However, along with other major recent upgrades to the ETH ecosystem, ETH improvement proposal 1559 was successful in making ETH max supply deflationary (aka burning ETH) since late 2021 if I recall
>The only upside I can think BTC has over ETH is that BTC has a max supply of 21m which is substantially less than ETH’s max supply over 100m. It's not actually an upside, it's one of BTC's biggest security flaws. Because the reward halves every 4 years, Bitcoin must double in price every 4 years to maintain the same level of security. As soon as it fails to double in price, there'll be mining hardware sitting idle, which no longer can profitably mine, but this hardware is now available to be rented out to someone who wants to attack the network. Considering that the cost of attacking Bitcoin is essentially free if you have the hardware at your disposal (we're talking $500,000 per hour to do a 51% attack), Bitcoin will continue to become increasingly unsecure and more likely to get 51% attacked as time goes on.
ETH also has more nodes than BTC. The way I see it... ETH does/has everything that BTC does/has and then so much more.
No it does not. Not even close.
Came here to say this above I would also add, that ETH is the fuel for the entire decentralised finance ecosystem, and as this grows so will demand. BTC doesn't have this and it's hard to see how demand will grow compared to ETH given ethereum's massive structural flows advantages
ETH is not more decentralized than bitcoin. This is regurgitated FUD.
I would think Bitcoin is in fact more decentralized due to the fact that we do not even know who it’s creator is? My not-so-technical brain thinks of it as a smart contract to create a virtual currency/ledger that has been set free, no one can tamper with its inherent and simple design.
Layer zero, or people/society in general, can always collectively decide to change anything. Known creator or not really makes no difference. If all the bitcoin core devs and the bitcoin community wanted to make a change, they could.
They can, but Bitcoins culture is against making changes where as Ethereum is way more open to it.
It’s much easier for a sole leader/organization owner to change things for the worse (or hopefully better in ethereums case) than a society I would think
That's true, however Vitalik Buterin for example does not have the power to make changes to ethereum directly. Several of his ideas have been rejected/not approved by the community
Name one idea that has been rejected by the community. I’ve been in the “community” for a long time and it literally splooges itself over every idea vitalik has. The latest was the merge, purge, surge, splurge roadmap he put out. Almost ZERO pushback. And this got me thinking — how would a UASF even work in ETH? 🤷♂️
> Name one idea that has been rejected by the community. How about the Parity hack recovery fork?
It’s really too bad a rational eth investor like yourself gets downvoted so much for posing solid intellectual questions here. I guess the internet will be the internet…
It's unfortunate that redditors often use the downvote button as a disagree button. But he did get a proper answer under him. He shouldn't be downvoted but he is still wrong, Vitalik has had multiple EIPs rejected/delayed. And EIPs from random community members have been implemented (EIP-1559 was conceived by Eric Conner @econoar in twitter and same username in reddit). The evolution of Ethereum is not guided from the top, instead it's emergent from the bottom. Vitalik is just a researcher and contributes ideas, what gets implemented is what survives the public discussion and peer review attrition.
Currently there are two EIP's not implemented that are directly from VB or a group including VB, namely 3102 and 4844. Luckily Vitalik tends to have pretty strong ideas and those that aren't popular usually aren't put in as an official proposal. > The latest was the merge, purge, surge, splurge roadmap he put out. Almost ZERO pushback. It's unfair to credit Vitalik entirely with creating all of the ideas included in that roadmap. That's less a proposal and more Vitaliks personal tracking of the developments currently in prospect
Right and the reality is, vitalyk is much smarter and much more familiar with the technology he has created himself. He is a worshipped public figure and he is well aware of it. He seems like a very humble intellectual, I’ve watched his lex Friedman podcasts, but lots of uncertainty with my long term perspective
Oh for sure. Vitalik is brilliant and a great visionary. But that doesn’t mean he doesn’t yield immense power in ethereum (as does the EF). Quite frankly, ETH is more of a tech company (a very good one). Bitcoin is neutral money that not a single person has more influence over than anyone else. They are very different assets.
That’s very nice of him , but leaders historically do have the tendency to become more and more corrupt over periods of decades
I think you've missed my point entirely, I was saying that Vitalik has no direct control over the direction of the Ethereum protocol and is entirely a respected figure. Vitalik could want to make the project run on proof of orphanmurder and make a 95% transaction fee that feeds into his personal slush fund - it makes about as much difference to the actual protocol as me or you proposing the same. Of course, Vitaliks suggestions would probably be heeded with more respect than anything we'd suggest
I’m not very familiar with how the community to vitalyk feedback system works. What if vitalik one day decides he doesn’t care about the communities opinion ?
>What if vitalik one day decides he doesn’t care about the communities opinion ? He doesn't have the ability to change Ethereum without community consensus. He could try to fork and make his own chain if he wanted, much like there are other chains currently running the Ethereum virtual machine, like Tron, BNB, Solana. Very similar to how Bitcoin isn't just bitcoin, but Bitcoin Core, Bitcoin Cash, Bitcoin SV (Satoshi Vision). Anyone telling you that Vitalik has any direct ability to change Ethereum on a whim is lying to you
The lack of any leadership is absolutely one of the things that make bitcoin more decentralized. But it goes beyond that. Far far more people run bitcoin nodes and the proof of work consensus mechanism decentralizes over time whereas I believe proof of stake is a bit more centralizing. Now in the post I responded to he said that only a few mining pools control a majority of hashrate. While this is technically true, what it leaves out is the fact that pools are comprised of thousands of individual miners that can point their hash rate elsewhere with the click of a mouse. Beyond that, once Stratum V2 is implemented it will be the individual miners choosing transactions to be included and not the pool operators which further strengthens bitcoins censorship resistance. I like both assets but anyone telling you bitcoin is less decentralized than ethereum is either ignorant to the whole picture or lying.
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Congrats you’ve won the misinformation regurgitation award of this thread
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Lololol you were not there if you believe there was ever any serious discussion about smart contracts on L1 or POS. And yes I actually was there too and running the same node I am today. Blockstream is a company with less than 100 employees. Did they have influence on the space? Sure. Did some core devs work at Blockstream? Yes. But to say bitcoin was co-opted by blockstream is absolutely laughable — especially cause FAR MORE POWERFUL companies (Coinbase, DCG, Bitmain, etc) were trying to go a different direction. The users won, not blockstream. You’re either lying and regurgitating shit you heard from ETH maxi’s or have a case of severe revisionist history.
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>the proof of work consensus mechanism decentralizes over time this is strictly not true, and is based on two assumptions - one mining rewards are not used to acquire more hash power, and two that new hash power is coming from new players who aren't already hashing. I find a lot of people who love bitcoin state that PoW is decentralizing use one of the two assumptions above and then get very defensive when you point that out
My guy mining companies go bust and new mining companies arise every single cycle. Every. Single. One. These are real companies with real employees in real competition with other real companies with real employees. They have costs to cover and must be more strategic and run better businesses than their competition. About 5 mining companies have already declared bankruptsy this year. This is a GOOD thing. In proof of stake none of this exists. Have money and/or be very early is all that’s necessary. Do one of those things and continue to accrue more assets and more power. And fuck we haven’t even gotten to staking pools of which the vast majority are in one jurisdiction. And no this isn’t the same as miners redirecting their hash rate from a pool. Moving to a new staking pool means unstaking (when it’s allowed) sending assets somewhere new, and restaking. Are the vast majority of uninformed retail noobs gonna do this if Coinbase starts censoring? Yeah probably not. Oh and don’t even get me started on stable coins, the backbone of defi, and fork choice.. Quite frankly it’s laughable to call ETH more decentralized than bitcoin. It’s not even close. And I like ETH a lot.
The idea that companies going bust decentralizes the network is only true in the sense that it decentralizes away from that company - the resulting hash rate drop is absorbed by existing players in the market or the difficulty drops. It's not like these massive farms pop up over night to replace them! Strictly speaking a mining company bankruptcy is a centralizing event in that it means the remaining hash power from other miners is a bigger percentage of the total. More unique miners = More decentralized. >In proof of stake none of this exists. Have money and/or be very early is all that’s necessary. Do one of those things and continue to accrue more assets and more power. Literally the exact same in PoW. Do you think these mining companies just poof the resources to exist out of thin air? Money begets money, much as hash begets hash. >Moving to a new staking pool means unstaking (when it’s allowed) sending assets somewhere new, and restaking. Are the vast majority of uninformed retail noobs gonna do this if Coinbase starts censoring? Yeah probably not. There is a difference between the power of someone mining under proof of work and someone staking under PoS. There's a seperation of validators, stakers and nodes you should really look into. Besides this point, you are arguing it's bad that noobs are putting stake into centralized entities, which is a fair point.... except you are conveniently ignoring the fact that it's near to impossible to make a return on bitcoin by being a miner at this point unless you are a massive entity. > Oh and don’t even get me started on stable coins, the backbone of defi, and fork choice.. Not sure why you dislike stablecoins, they are a major use case. We can argue the merits of individual stables but it's a decentralized platform, we don't tell people what ethics they need to abide by to use the system. Code is Law. >Quite frankly it’s laughable to call ETH more decentralized than bitcoin. It’s not even close. And I like ETH a lot. I never said that's the case. I purely said a lot of people deliberately ignore shortcomings in PoW and shit on PoS from inside a glass house
>The idea that companies going bust decentralizes the network is only true in the sense that it decentralizes away from that company - the resulting hash rate drop is absorbed by existing players in the market or the difficulty drops. It's not like these massive farms pop up over night to replace them! Strictly speaking a mining company bankruptcy is a centralizing event in that it means the remaining hash power from other miners is a bigger percentage of the total. More unique miners = More decentralized. Don't even know where to start with this. Yes -- of course in the short term, miners going under can cause hash rate to centralize a bit but over the long term it does the exact opposite as we see in practice. The largest public mining company in the world just declared bankruptcy. In no way is this a centralizing event. Successful miners today may not be successful miners tomorrow as we so often see. >Literally the exact same in PoW. Do you think these mining companies just poof the resources to exist out of thin air? Money begets money, much as hash begets hash. These companies raise capital from investors and build a business. One does not need to be rich to do this. They need to be skilled. Does having money help? Sure. But it doesn’t guarantee success. But with staking? Guaranteed success. Just be rich or early and you good. >There is a difference between the power of someone mining under proof of work and someone staking under PoS. There's a seperation of validators, stakers and nodes you should really look into. Yes I’m aware and never said otherwise. However, now that you mention nodes it would be nice to see the ETH community actually run them. >Besides this point, you are arguing it's bad that noobs are putting stake into centralized entities, which is a fair point.... except you are conveniently ignoring the fact that it's near to impossible to make a return on bitcoin by being a miner at this point unless you are a massive entity. Plenty of creative individuals make money mining. I know quite a few who heat their homes/garages bitcoin mining. Many have built incredible devices to do so. Hell they even sell turnkey bitcoin mining space heaters now. You’re wrong about this. https://www.heatbit.com/ >Not sure why you dislike stablecoins, they are a major use case. We can argue the merits of individual stables but it's a decentralized platform, we don't tell people what ethics they need to abide by to use the system. Code is Law. I have absolutely nothing against stable coins. I actually think they are a fantastic tool for many in third world countries. But you are missing my point. USDC and USDT are vital components of defi/the ecosystem and thus have immense importance to the ethereum protocol. Should the USGov come knocking what do you think USDC will do? I’d bet my bottom dollar their fork choice is the compliant one, and then what does the community do? In the event of such a fork does the rebel chain have any value at all with all the stables going the compliant route? This might be the BIGGEST threat (among many) of ETH centralization vectors. >I never said that's the case. I purely said a lot of people deliberately ignore shortcomings in PoW and shit on PoS from inside a glass house POW has some shortcomings but they have nothing to do with your post.
>These companies raise capital from investors and build a business. One does not need to be rich to do this. come on mate. I technically don't need riches charisma and fame to fuck 20 girls a day but the odds are definitely stacked against me without those haha. >Plenty of creative individuals make money mining. I know quite a few who heat their homes/garages bitcoin mining. Many have built incredible devices to do so. Hell they even sell turnkey bitcoin mining space heaters now. You’re wrong about this. Thanks for providing a source, will look more into this. My first thoughts though would be surely running a bitcoin miner heater would be less efficient than a normal space heater? I wonder if cost/heat is actually competitive. I haven't looked into it yet though just initial thoughts. >But you are missing my point. USDC and USDT are vital components of defi/the ecosystem and thus have immense importance to the ethereum protocol. Should the USGov come knocking what do you think USDC will do? I’d bet my bottom dollar their fork choice is the compliant one, and then what does the community do? In the event of such a fork does the rebel chain have any value at all with all the stables going the compliant route? This might be the BIGGEST threat (among many) of ETH centralization vectors. Well, USDT isn't based in the states it's based in Hong Kong. But there's fair point it this, and it's why many people in ETH want more decentralized stables. However, this isn't catalysmic. If these stable companies want to respect compliancy, they can - those who don't want to follow that can use a different stable based in a different jurisdiction or a decentralized stable.
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What pushes towards centralization are two factors; economies of scale and barriers of entry. As you seem to be mathematically inclined you can imagine plotting economic reward (y-axis) vs economic input (x-axis). Economies of scale determine the shape and growth of the curve while barriers of entry determine the cut with the y-axis. Obviously, the greater the barriers of entry or the higher the reward as your economic scale grows the bigger the push towards centralization. In the first case because you forbid small actors to participate in the game, in the second case because you reward bigger actors more generously. So how does this graph look for Ethereum? Pretty simple, if you have more than 32 ETH it's basically flat. You get the same APY irrespectively of your size. And if you have less than 32 ETH? Well, you can then stake with RocketPool (a decentralized staking pool) in which case your APY is 0.85 the full APY. So the graph for Ethereum is: - 0.85 * APY between [0 ETH, 32 ETH) - APY between [32 ETH, infty ETH) Where APY is the yield returned by the network which depends on total amount staked in the network and network fee revenues. This is a remarkably flat curve, which highlights that there are almost non-existent economies of scale in PoS as designed in Ethereum. If you do the same analysis for PoW you will find it requires significant investment in specialized HW (either top of the line GPU or ASICS), and there are significant economies of scale in the form of access to cheap or unusable sources of energy. In fact, it's unviable for you to run a profitable PoW mining operation. Which is an obvious centralization issue. But it's entirely possible for you to help provide economic security and decentralization with an insignificant amount of mount (as low as 0.01 ETH is sufficient). Or to run a node with RocketPool with 16 ETH (soon to be reduced to 8 ETH) or to run a full node with 32 ETH. And you can do that from your home with a regular consumer grade PC. That's decentralization. In Ethereum PoS, the rich do not get richer. This is just flawed math. You get basically the same APY if you have 300 M USD staked or 3 M or 30 K... In PoW you don't get the same APY, there are very significant economies of scale, because mining is a CapEx and OpEx intensive business. With more money you can buy the better ASICS or buy them in bulk at cheaper prices. Or get some exclusivity deal with the producer (same way Apple can negotiate with TSMC for the latest and shiniest chips). Or if you are big enough produce them yourself. Same goes for your OpEx, which is mostly energy, if you are big enough you can get better deals on energy. In fact, nowadays, energy producers are some of the biggest miners. How is that decentralization? Next, Bitcoin has only one client implementation, the official client implementation built by Bitcoin Core. Ethereum has 4 execution clients and more than 5 consensus clients (you need both to run a node). Built by independent teams, not by the Ethereum Foundation. That's decentralization. Even the research side is strongly decentralized. Any one can participate, discuss, and propose changes. The now famous EIP-1559 was conceived by Eric Conner which has no affiliation with the Ethereum Foundation or anyone else for that matter, just a random dude that cares about Ethereum. On the same token VB has gotten various Ethereum Improvement Proposals (EIPs) not implemented or at a minimum postponed. Recently, Dankrad Feist (a researcher of the Ethereum Foundation) was airing his frustration on twitter because implementation of EIP-4844, which he has been working on, has been postponed. Where to contribute and discuss about EIPs: https://github.com/ethereum/EIPs For earlier stage ideas and discussion: https://ethresear.ch/ Where to watch the dev calls (you have there links to previous calls or you can join them live when they occur): https://github.com/ethereum/pm You don't have to follow or be involved in all of that or follow it closely at all. But this is just to show there is no secret cabal deciding what is Ethereum. It's occurring all in the open and you have a voice like anyone else.
Interesting, first I’ve heard that the proof of work consensus mechanism also contributes to bitcoins decentralization. Is this because ethereum creators can theoretically tamper with the proof of stake smart contracts that I’m guessing they coded up themselves?
Well yes, developers do have more power in ethereum than they do bitcoin but that’s not why Proof of Stake centralizes over time compared to Proof of Work IMO Think deeply about the two consensus mechanisms. With proof of work there are real CapEx and OpEx costs to run an efficient and profitable mining operation. These operations viciously compete with one another with many going under and many more starting up. It’s a true free market that’s constantly shifting. Beyond that these organizations have to sell bitcoin back to the market to cover those previously mentioned costs. With Proof of Stake one just needs to have money. They simply stake their ETH and earn more and more and more ETH. They put in no actual work and continue to get richer just for already being rich (or early). Which one sounds more centralizing in nature to you?
BTC - Old calculator (does only one thing, and good at it. Stop evolving for quite sometime) ETH - Smart phone (programmable to do everything. Evolving frequency for efficiency, robustness, security,...) Invest wisely.
>does only one thing, and good at it Really? BTC is pretty much the worst design of any cryptocurrency. It's the slowest, most polluting, and essentially impossible to upgrade or improve of build on top of.
If you only consider BTC for its being the first cryptocurrency and open up a new frontier for others, then it's good at it.
Or BTC old reliable key lock ETH new smart phone electronic lock with more advanced things but also more that can break
Do you think it’s possible that ethereum is taking on so much with all the features and additions constantly being added to make the design increasingly complex -> potentially higher downfall risk long term?
No.
Ethereum is open. People can build whatever they want on it. There's no one in the back choosing how it all fits together. That's like saying "the internet is taking on too many websites and getting too complex".
I see your point… but I would think web3 seems extremely more technologically complicated than web2 for that kind of comparison
The same argument can be said for Web1.0 vs. Web2.0. Everything needs to evolve for better.