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I don’t imagine many people have dreams about proof of stake algorithms, but evidently I do.
Last night I dreamed I was on a train arguing about crypto. An elevated line through the city. Sparks flying at every corner. Rushing past beautiful old buildings as the conversations in the back carriage started to heat up.
Specifically, it appears, we were arguing about the lightning network. The lightning network which is being built on top of bitcoin but has quite a few striking architectural similarities to Dash and/or the sharding and proof of stake improvements being built into the next version of ethereum.
It seems that the only way to scale crypto to thousands of transactions per second is to move processing off the block chain and onto a bunch of off-chain nodes held together in a big network of IOUs. Processing at these super-nodes (or master-nodes) is pledged against a proof of stake and then verified against the ‘ground truth’ of the block chain. Thing is, the ‘stake’ in proof of stake looks a lot like the gold in old fashioned banks vaults, and the incentives (or transaction fees) in proof of stake rewards look surprisingly similar to the interest that banks give out in return for holding your money.
Now to be clear, the crypto primitives in these new algorithms guarantee trustworthy behaviour in a way that is a million times more reliable than the old systems of (for instance) state inspectors periodically checking that a bank’s gold reserves are actually in their vault but, still. The parallels are pretty striking.
What is the point of crypto if we’re just going to bring back interest … I go to ask. But I am interrupted by a commotion up ahead.
There are alarming bangs and sparks and squealing sounds coming from our train as it rounds a corner up ahead.
What should we do? People ask me for some reason. But what do I know about runaway trains? Am I a train inspector? Pull the safety cord, maybe? I dunno.
Somehow I am back to my argument in the back carriage.
What is the point? I have to ask. What is the point of crypto if we’re just going to bring back super-nodes that ultimately end up acting a lot like banks?
A proof of work block chain guarantees a certain degree of equality of nodes in that every miner checks every other miners work and any node is equally ‘connected’ to every other node through the block chain. But if the new processing paradigm is network based, what will guarantee that the shape of a lightening network or the next-gen sharded ethereum network is truly distributed?
If it’s like any other kind of naturally arising social network it will probably have connectivity distributed according to a power law. Something like this:
Or in other words, a topographically hierarchical network in which the Coinbase lightning network supernode has a thousand times more connectivity than Joe Shmo’s coffee shop lightning network node. Like option C below:
Making matters worse, there’s an obvious incentive to connect to the super-node with the greatest connectivity, meaning ever more concentration into hierarchy over time.
In such a world, sure, we can algorithmically enforce good behaviour, but who will get to decide how the algorithm evolves into it’s next version? Did some nodes in our revolutionary new ‘break the power of the banks’ crypto utopia just become too big too fail?
I don’t pretend for a second that I can predict the future, but maybe we should at least locate the emergency brake lever because I don’t think jumping off the runaway crypto train is going to be an option any time soon.
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