PoS sucks?

This is probably my biggest concern with Cardano. (Although it also applies to the vast majority of other cryptocurrencies). You have multiple incentives to keep your money out of circulation (staking rewards + deflation) and a disincentive in the form of (hopefully small in ADA’s case) transaction fees. That might all be good if the end goal was simply to create a store of value. But Cardano is seeking to build an entire development ecosystem.

I’m not an economics expert and could be wrong here, but it seems hard for me to imagine a thriving economy built on a constantly deflating currency.

That said, this feels like a ~2025 problem. And also, Charles also doesn’t seem concerned about this at all. The only thing I’ve heard him say about it is that he’s not sure they need to use the total max supply. As in, maybe it’s not deflationary enough!

1 Like

To argue that POS uses as much electricity as POW is absurd and should not be taken seriously.

I think the only credible concern (from a POW point of view) is censorship. If a bad actor (aka: the “state”) was to get a hold of the majority of ADA they could selectively approve transactions based on a “whitelist” they approve (i.e. those who have “the mark”). With BTC the process of block creation (mining) is completely separate from ownership stake, so the “state” needs to have majority of mining power to effectively sensor BTC transactions (in theory). Since mining is a profitable business it is open for those who wish not to be censored to increase mining power and take majority. So, in theory, there is always a path to resist censorship.

I am not convinced this is a real concern, but from what I understand it is the only leg POW maximalists really try to stand on, now that IOHK has proven Ouroboros is secure. If there is something else, please let me know!

2 Likes

@werkof I’d like to add to your analogy that since it’s a race, participants would buy faster, gas guzzler, cars. The protocol also adjusts by making the roads longer to lessen the likelihood that the address will be found immediately as the cars improve.

In contrast to buying lottery tickets. You can increase your chances of winning by increasing the tokens you hold. No need to increase computing power and electrical consumption.

@epowell Cardano technical team is best to answer any security issues. As the peer-reviewed white paper says, it is mathematically provable that it is secure. Where’s the mathematical proof that it isn’t?

1 Like

If your money is in Cardano, you have an incentive not to spend it because it’s inflationary. That is exactly the same as using the US dollar- you can “stake” your dollars by parking them in stocks, bonds or gold instead of spending.

If your money is partially in Cardano, and the part you actually want to spend is in dollars, then Cardano would never see any activity… but why would you keep X% of your money in dollars, when it is just as easy to spend ADA, and you can make a profit on it at the same time?

That’s a good point. Staking is like having your funds in a bank account and earning some value because you leave it there. I think stacking should have a virtual aspect and not a real one. For example, if we do not have banks anymore and users are the “banks” how can I lend money to someone? Staking will not be the best option for a real economy where lending money is a big part of it. Unless the pools can “virtualy” lend ADA’s to other users. As the pool is staking you could create a function linked to the ADA hodls in the pool. That could be a doble incentive to stakes AND lend money in a working economy. As the real value will be always in the pool, the real derivative of the lend will never be a real issue if someone can’t afford to pay back the loan. This would be a plusvalue. The derivatives could be called ADAL and be linked in price to a % of ADA staked in a few pools.

Putting your money in stocks isn’t equivalent to staking it. With stocks, you’re investing your dollars in an outside company with the hope that the company and stock price will increase in value. The money is out in the economy, not locked up in a safe somewhere. You’re taking a risk as well, because the company could struggle and the price could fall.

Staking is more like treasury bonds or something. Your betting on the underlying health of the entire system (whether that’s a protocol or a country). This is low risk bet compared to actively investing your currency in the larger economy.

With dollars, treasury bonds aren’t a great bet because of inflation. The expectation that dollars will be worth less in the future than today makes riskier but higher upside choices like stocks or starting/expanding a business better choices. But with Cardano the most rational choice for each ADA holder might be to leave it in cold storage and stake it–you have deflation and staking rewards working for you and no transaction fees working against you. This could hurt the Cardano economy of transactions and Dapps, because people would rather keep their money locked up than risk spending or investing it.

1 Like

I love that post !! I think it is VERY apt to compare cardano Ada to a security like a treasury bond … although they are not the same in many ways. In cardano, users will , according to economic incentive theory, vote to control the % of inflation via consensus. I know at first the node reward will be high, but, it’s possible that a developer-on-the-chain or a “ventures vote” by stakeholders can capture the range of investment value , later, when we are “more than satisfied” with the safety,. We would all seek to do with value , whatever returns more value! If that is functionally being a bank or if it’s a new form of democracy or any type of venture, I’m sure entities in this dao will have a variety of ultimate “risk appetites” , and will be able to thusly play their hand .

2 Likes

This post might be interesting to you:

4 Likes