Proof of Stake Would Kill Bitcoin (and Maybe That’s the Idea)

Proof-of-Stake and Bitcoin: BTC Shouldn’t Ditch Its Proven Consensus Mechanism for One Who Hasn’t Had 14 Years of Combat Testing, Says Principal Crypto Analyst Rick Delaney @OKX.

It’s been a few months since Ripple and Greenpeace, and a handful of other environmental organizations, showed they had no idea why Bitcoin is special. Announced in March 2022, the “Change the Code, Not the Climate” campaign attempts to pressure influential Bitcoiners to involve the switch from the time-consuming and time-tested proof-of-work consensus mechanism to the still-experimental proof-of-stake.

To justify its existence, the campaign relies heavily on Ethereum’s ongoing transition to PoS. And, like the day Ethereum miners stop for good approaches, the anti-PoW foul is sure to increase its pressure on Bitcoin.


Proof of Stake vs Proof of Work from BTC

In summary, the rationale is “if Ethereum can do it, so can Bitcoin”. However, this completely misses the point. Above all, Bitcoin proponents value its predictability and adherence to sound monetary principles. All of this becomes suspicious if fundamental changes are degraded to its code base.

Much has been written about PoS and PoW, and their trade-offs. While some claim that PoW provides insurmountable security, others claim that PoS achieves the same choice at a fraction of the power consumption. The debate rages on, and I won’t rehash the arguments here. Instead, I’d like to focus on something much more fundamental to explain why PoS is unsuitable for Bitcoin and its value proposition as the strongest currency on the planet – its lack of historical precedent.

Predictability breeds trust

Money is a system of trust. Without the belief that that piece of gold, a £20 note or even a handful of seashells can be exchanged for someone’s time, products or ideas, these collections of molecules are just that. It is us as humans who put a monetary value on something, and history has shown time and time again that a monetary system quickly collapses without trust.

Would gold have been considered the first currency on the planet, transcending space, time and cultural differences, over the past 5,000 years if its molecular structure periodically changed? Of course not. Gold does not change and remains trustworthy. In countries with the most unpredictable monetary policies that struggle with erratic economic conditions, confidence in currencies and, therefore, currencies themselves completely collapse.

Nor does trust emerge overnight. BTC has been around for 14 years with over 99% uptime and is still not universally recognized. Although many modifications were rejected to the protocol (after long debates and the search for consensus at the network level), its main characteristics – characteristics namely its finite supply protected by the weight of the most powerful computer network in the world – remain the same.

Changes, especially those with no historical precedent, often invite doubts about the future. Imagine a Fortune 500 company firing its successful CEO and bringing in a complete stranger. You don’t have to be a genius to predict the impact on your share price. Now imagine that the entire value proposition of an asset is based on its predictability. This is where BTC is at.

“Ultrasonic Money” is a prank

There is a popular meme circulating among the strongest Ethereum proponents. It is a belief that anything designed to “go up the number” – i.e. drive up the price – positions ETH as a stronger form of currency than BTC, perhaps even an “ultrasound currency”.

It is easy to see why the same is popular – if BTC is designated as a sound currency, our “sound currency” is surely better. Yet that makes absolutely no sense.

BTC is considered healthy in part due to its limited supply. However, the hard cap of 21 million means nothing if those using it (and yes, just holding it are using it) have no faith that it stays that way. If BTC were to ditch its proven consensus mechanism for a mechanism that hasn’t had 14 years of combat testing, why should its users believe that its finite supply isn’t the next feature to drop? BTC’s resistance to such changes is integral to its classification as a sound currency.

Proof of Stake would kill Bitcoin (and maybe that's the idea)

Proof of Stake and Ethereum

ETH, on the other hand, is not a sound currency. Its supply and total issuance in circulation are difficult to quantify, and mechanisms such as EIP-1559’s fee consumption only make it more unpredictable. If no one is using Ethereum, its issuance is inflationary. If many users are transacting, its issuance may be deflationary. The very fact that no one can classify its monetary policy with certainty – which apparently remains subject to change – means that it is not sound money, let alone “sound money”.

Whatever you think, it’s telling that El Salvador, MicroStrategy and others got into BTC and not ETH, XRP, SOL or any other crypto. BTC is not trying to be a world computer. It does not try to serve as a platform for legally suspicious applications. These goals, perhaps admirable in themselves, have evolved into an entirely different web, and dramatic changes are to be expected.

BTC, on the other hand, is poised to establish itself as the strongest form of currency that has ever existed. The experimental consensus protocols are completely at odds with its mission.

Move slowly, don’t break anything

Does PoS currently being a bad fit for Bitcoin mean that ETH is worthless or that the Ethereans champion’s “increasing numbers” mechanics are bad or undesirable for Ethereum? Absolutely not. The argument does not comment on what is suitable for a network with smart contract capabilities at the base layer.

Nor does it mean that the PoS itself is obviously flawed. There are strong arguments on both sides of the debate, but the fact that there is even a debate means that PoS is not suitable for Bitcoin today. It may well be appropriate tomorrow, but attempts to change the code may very well destroy everything that makes BTC special.

For now, PoS in the form that Ethereum implements is not widely tested. There are currently many variations of delegated proof-of-stake, but no blockchain worth tens of billions uses quite the same system that Ethereum is heading towards. It is also extremely risky to switch from PoS to PoW on a live network. This is why the Ethereum merger takes so long. ETH has gone through an unstable transition period, while BTC’s appeal stems directly from its stability.

Proof of Stake would kill Bitcoin (and maybe that's the idea)

Proof-of-Stake and BTC: misunderstanding or malicious intent?

Given that the “Change the Code, Not the Climate” campaign is so essential at odds with what Bitcoin users are provided as the network’s core value proposition, one has to ask the question: why rock the boat?

On the surface, you have environmental groups who share a tunnel vision of power consumption – “if it uses electricity and we don’t like the app, it needs to be eradicated”. Since Greenpeace and the Environmental Task Force see no value in Bitcoin anyway, potentially killing what makes the network special in order to advance their agenda is fine. For them, police energy based on what they subjectively deem useless or perfectly acceptable.

Now we come to Ripple. Ripple, of course, is the company behind the cryptocurrency XRP and presumably believes that its own digital money swipe has a lot to gain from Bitcoin’s demise. A conspiratorial prize? Perhaps. But, given Ripple’s own actions in the crypto industry, which has always been about reaching out to existing financial institutions and providing them with the tools to protect the status quo, the suspicions are warranted.

We can speculate on Ripple’s true intentions, but one thing is certain: similar attacks on Bitcoin will grow stronger as the Ethereum ‘merger’ approaches. And make no mistake, they are an attack on Bitcoin.

A video on the Change the Code, Not the Climate website states:

“The cost for bitcoin is almost zero.”

Yet hundreds of millions of Bitcoin users, myself included, disagree – cost for Bitcoin is everything.

About the Author

rick delaney

Rick Delaney is a Principal Crypto Analyst at OKX. He’s a former poker player turned writer with a college background in politics and linguistics. He first came across Bitcoin in 2013 while looking for other ways to fund online casino accounts. Upon further reading, BTC’s promise to divorce money from corrupt bankers struck a chord with him. A few years later, he got his start in the crypto space working for media publications, including BeInCrypto, before joining OKX as the exchange’s senior content writer and crypto analyst. His interests run into all corners of the industry, but decentralized systems are what created him, and that’s where his true passions remain.

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