Proof-of-Stake and Stablecoins: A Blockchain Centralization Dilemma
Good article. A few key points:<p>Proof of stake:<p><i>&quot;Proof-of-work is fundamentally very simple, is easy to analyze, is easy to implement and deploy, and proof-of-stake has a lot of moving parts. You can code up a proof-of-work algorithm in a hundred lines [of code] or so. Our current (Ethereum) clients are a hundred thousand lines or so for proof-of-stake.&quot;</i><p>What could possibly go wrong? Remember the DAO hack. The author also points out that proof of stake makes it much easier to change the rules for a token. He considers proof of stake coins to be a different asset class because of that.<p>NFTs:<p><i>A key problem is that these types of NFT sets are pretty easy to manipulate ...</i><p><i>The first scam is to bid up asset prices and trick buyers into thinking those prices are real and to buy into it. It’s market manipulation, in other words. For example, a user can set up five different Ethereum addresses, and start trading around an NFT to themselves at increasingly higher prices. Outside observers don’t know that all these wallets belong to the same person and that this is literally just insider trading. This is only possible with a non-fungible asset; you can’t manipulate the price of an individual bitcoin or an individual ether on your own, you can only manipulate unique objects like for example CryptoPunk #9998. Then, with prices (seemingly) so high, some people want to get in on the momentum and buy the NFT, so the person who was trading among their own wallets finally sells the asset at a higher price to that unsuspecting newcomer. When that newcomer tries to sell the asset, he or she is unable to find other buyers who actually want to pay that price. They don’t realize that a lot of the liquidity and price-escalating transactions were actually just manipulation.</i><p>Yes. We know now that the famous Beeple sale was faked like that. Go over to OpenSea and look at some of the high-priced items. Then look at the bid prices on them. As I pointed out previously, this is exactly like Beanie Babies on eBay - asking US$5000, actual sales around US$50. The result is a stalled market, rather than a crash - lots of asks, few bids, orders of magnitude bid-asked spreads, few transactions.<p>Stablecoins:<p><i>&quot;any smart contract blockchain that relies heavily on DeFi for its use case, can have the outcome of its hard forks significantly determined by centralized stablecoin custodians. These custodians can nullify the value of all stablecoins on whichever side of the fork they don’t view as the correct one, which severely reduces the survivability of that side of the blockchain by rendering its DeFi mostly insolvent.&quot;</i><p>Custodians. Like Tether&#x2F;Binance. Those guys.