Proof of Value

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Discussion

From Proof of Work to Proof of Value?

Julian Feder:


"The PoW protocol allows the Bitcoin network to reach consensus regarding the contribution of each node in the system to the authentication process needed to verify transactions. The moment such a consensus is reached, contributors are rewarded with freshly minted Bitcoins.

The PoW model restricts itself to an algorithmically quantifiable and verifiable action, e.i how much computing resources you’re investing into the network, other value creating actions – like suggesting improvements to the system, writing code, creating software updates or anything their like, which geniune people have to do, are entirely of the scope. Bitcoin knows how to create and distribute value in a decentralized fashion, as long as no dirty humans with opinions are involved.

There’s another major problem with the Proof of Work scheme, especially if one would use it to determine the future of the entire system the way Hearn and his colleges from Bitcoin XT suggested (Voting with hash power to decide on the blocksize): Computing resources are a tradable commodity. Everyone with enough resources is capable of centralizing the entire system under his dominion, both in terms of the revenue stream created through mining, and in deciding how the system behaves, given voting with hashpower would become a thing. This is probably the reason why some consider Bitcoins “Lack of democracy” being such a great trait.

In the early days, many were terrified that some financial interest group like the Fed or some other statist syndicate, consisting of cigar smoking man in black, might bring Bitcoin down in exactly this way. Luckily, that didn’t happen. You only have a hashpower triopol generating about ⅔ of the network’s total hashrate, most of which resides in the People’s Republic of China, behind a stasi-type firewall, making the system painfully slow.

There are alternatives to PoW, like “Proof of Stake”, where the amount of minable blocks is restricted to the amount of Bitcoins a miner holds. This would make it very costly to establish a monopoly position, but would officially transfer the ownership of the network to the 1% Bitcoin oligopoly, which currently holds about 99% of the entire Bitcoin supply (sounds familiar?).

So it seems that all of these schemes do a very good job in decentralizing the technical contribution needed to keep the network up and running, but have very little to do with making decisions, improvements and progress. However, it should be self evident that every system that involves genuine people, as automated and well designed as it first may appear to be, will at some point require adjustments, all of which will most probably necessitate decisions, have consequences for various interest groups and be subject to criticism. All these decisions and adjustments do not only require means to form an informed conesus, they also require a compensation mechanism that encourages improvement and gains the attention of highly skilled professionals – and above all – a sybil proof scheme to keep the system truly decentralized.

But is that even possible? Could we play the same trick, PoW plays on computing power, on human contributions to an evolving organisation? Including assessment of value, establishment of consensus and compensation via cryptocurrency?

At Backfeed we believe that the answer to this question is yes, and we’ve developed exactly such a mechanism, which not by accident goes under the name Proof of Value, or PoV, " (http://magazine.backfeed.cc/the-bitcoin-debacle-making-the-case-for-decentralized-governance/)