Why proof of work has a lower entry barrier than proof of stake

Why proof of work has a lower entry barrier than proof of stake

A recent Proof of work explainer outlined some interesting energy innovations that got me thinking about this debate. The argument against PoW often goes that as hashrate increases (the total computing power on the network), new miners have to pay more upfront costs than the miners that came before.

It creates a system of inequality that favors the wealthy early adopters over others. The response to this has always been:

  1. inequality impossible to avoid.
  2. And the value that PoW brings is the ability to produce consensus without a single centralized authority.

So while there is a degree of centralizing forces in all consensus mechanisms, they don’t directly undermine the security of a cryptocurrency’s monetary policy.

So why have this debate?

Centralizing entry barriers is still an important consideration. If a network fails to attract new miners/validators it can grow stale. Validating nodes offer more than network security. They serve as a network's most dedicated advocates. They are the most willing to support and build applications that make the blockchain more useful – whether it is payment rails, Dapps and so on. Hashrate growth and validator diversity are indicators of future innovation.

Why is PoW a lower entry barrier?

Well, with PoS, wealth is the primary way to gain a competitive edge. PoS differ in exactly how that plays out. But basically, the strategy is always to find ways to accumulate more of the underlying token. That can be through marketing efforts that try to convince other token holders to delegate their tokens to your pool or secure funding through well-connected channels. There is little room for innovation in this endeavor.

Since proof of work is only concerned with hashrate, new participants are empowered to innovate more efficient ways to claim a greater share of that pie. There are really interesting opportunities for small business owners with surplus energy. This includes farmers that have access to biomass energy, solar power companies and so on. It even adds greater incentives for regular people to find more efficient energy alternatives. If you are some rando that taps into a Tesla-like energy source, you can start to profit from it immediately by mining Bitcoin. You don’t have to wait for years of patent approvals and funding stages.

This creative ingenuity doesn’t exist in most PoS systems.