The risk of corporate monopolization is extreme in proof-of-stake (PoS) -based systems as they transform new financial systems into plutocracies, dozens of U.S. companies have warned in a letter to the U.S. agency.Environmental Protection Agency, EPA).
Businesses retaliated against the congressional member’s attacks Jared Huffman who recently described Bitcoin (BTC) mining as “poison to our society”, contributing to “air, water and noise pollution”. According to the companies, Huffman’s letter to the EPA is “based on several misconceptions regarding Bitcoin and digital asset mining that have already been disproved or confused mining with other industries.”
The two largest market-value cryptocurrencies – Bitcoin (BTC) and Ethereum (ETH) – are currently using the proof-of-work (PoW) consensus mechanism, but ETH plans to switch to PoS soon.
If the letter was signed by several bitcoin mining companies such as Nuclear science, Argo Blockchain, Foundry Digital and others, including one of the largest BTC holders, Microstrategy, other major players in the crypto industry have also signed the letter. The list includes in particular Digital currency Group, Galaxy Digital, Grayscale investments, SBI Crypto and bitgo.
In his letter, Huffman writes that “less energy-intensive mining technologies, such as PoS, are available and have a 99.99% lower energy requirement than PoW for validating transactions.”
But according to players in the crypto industry, the reason why PoS is not suitable as an alternative to the PoW-based bitcoin mining process is that it tends to get power to accumulate over the cryptocurrency network in a reduced number of hands. Many cryptocurrency owners choose to keep their assets with large custodian banks, which inevitably leads to risk and centralization in a PoS system, according to the letter.
“[…] in practice, these intermediaries tend to hoard most of the supply, “the letter states, adding that rising regulations are making it increasingly difficult for new custodian banks to enter the market, leading to further market consolidation.
“Thus, the risk of business acquisition is extreme in proof-of-stake systems,” the letter states, citing STEEM’s acquisition of STEEM as an example. Justin Sun.founder of Tron (TRX).
“Simply put, proof-of-stake is transforming these new financial systems into plutocracies – a result that is inconsistent with tools designed to be decentralized, global and completely devoid of political barriers to entry,” the letter said before it continues. :
“Since Bitcoin was created specifically to eliminate intermediaries, it is imperative that it remains on proof of work.”
Since PoS and PoW are qualitatively different, according to the letter, it is misleading to refer to PoS as a more “effective” form of PoW, as it does not achieve the same result.
“A bicycle uses less energy than an airplane, but it does something different and therefore can not be considered more efficient,” they wrote, noting that PoS, for example, does not allow the achievement of decentralized distribution of a digital asset, as PoW does.
In addition, according to the letter, PoS is to be understood as an industry designation for a shareholder-driven financial consortium.
“In modern PoS systems, it is the largest token holders who ultimately determine corporate governance, although this is not explicitly encoded in the protocol,” the authors write.
However, the Ethereum community has previously rejected similar claims.
For example, during an interview with Cryptonews.com, Marius van der Wijdendeveloper of Ethereum, said the community is doing everything they can to keep the PoS implementation on Ethereum decentralized, secure and fair to all users.
“There is an argument that in PoS only ‘the rich get richer’, but I would say that is even more true in PoW because mining companies can benefit from their economies of scale much better than not. Any miner at home,” according to van der Wijden.
At the same time, the letter from major crypto actors worked to systematically address each of the many points raised in the congressional letter, including allegations of “environmental and pollution risks” from mining, the reopening of coal and gas plants shut down by miners, and misrepresentation of the power consumption of a single bitcoin transaction.
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