Why I’m focusing on Proof of Stake cryptos from now on

Just a short post that I’m working on articles related to Proof of Stake cryptos, namely Tezos (XTZ) and Cardano (ADA). I wanted to put down my thoughts on why separately in one place that I can link to.

I have said this to anyone who will listen: cryptocurrency is currently treated like Linux was in 1995. Most people don’t know about it, the ones that do are mostly misguided about it, and many think it will only be used for criminal activity. I really need to take a moment here and address this since I see it online all the time, and even in conversations with otherwise quite intelligent people.

“Crypto is only used by criminals”

Now, this is even less logical than it was in Linux’s era mind you, since at that time, computers were far less ubiquitous than now. It might be somewhat understandable that everyday folks would not understand the difference between those hippies giving away their free Unix-like operating system, and those crackers trying to break into computer networks to steal or give away someone else’s commercial code.

Nowadays, everyone has a powerful computer in their pocket. The vast majority of programs most people use on their desktops to browse the web is free, and usually source-code accessible. Many App store programs are at least freely available once you agree to the terms of the Walled Garden. People are used to free programs at source code on github; new startups looking to upset the status quo and offer new and often cheaper means of getting products or information. Uber. Netflix. DoorDash. Yet for some reason they assume that the main use of a new currency ‘disruptor’ is for criminals?

Yes, ransomware attacks often call for crypto payments to free a victim’s computer. The reason is simple, crypto is an efficient and irreversible method of exchanging money. Before crypto flourished these criminals often asked for MoneyGram payments. This does not mean we should ban MoneyGram. Also, the vast majority of cryptocurrency uses a public ledger as a check to verify that transactions are succeeding, which means actually using it to e.g. launder money would be pretty idiotic as it it far more traceable than just using cash. Are we done with the ridiculous idea that crypto is only used for criminal activity yet? Jeez.

Why Proof of Stake coins? A Refresher

If you’ve made it this far you should at least agree that crypto is probably going to become more important than it is already today. It’s quite possible that, like Linux and BSD did with computers (powering datacenters as well as Android and MacOS/iOS devices), it might power the vast majority of financial transactions, though not directly in a way that people are aware of. So, if you believe in crypto, why should we focus on using Proof of Stake coins vs Proof of Work? What do these terms even mean?

For a refresher, Proof of Work is the mechanism of computing Bitcoin blocks and ensures that people are not fabricating transactions, which is pretty important when dealing with currency transactions. Hardware ‘miners’ spend all day calculating blocks, which as many people now realize, consumes a very large amount of electricity.

But just like people nowadays do not spend much time using MSDOS applications, there are new and far more energy efficient algorithms to accomplish the same mechanism as the Proof of Work method, which again is just to make sure transactions are secure and not being fabricated by some bad actor. One of these methods that has already proven itself to be a reliable replacement is called Proof of Stake.

In a nutshell, Proof of Stake is simply a mechanism where transactions are confirmed by validators who put their own funds as a ‘stake’ as incentive to act in good faith. Instead of a computationally (thus electrically) heavy calculation, a validator puts up their own funds as a ‘stake’ to keep them honest. A validator found to be cheating on just a single block loses their stake, which for example in XTZ is currently worth $28000. From a security perspective there is always the concern of a 51% attack here, but Proof of Work has this problem as well. As a further disincentive, the idea of holding 51% of a currency only to cause its value to plummet by forging transactions seems rather foolhardy.

Why XTZ and ADA?

Quite simply these are the coins I know the most about at this point. I think the have good long term potential to succeed in the market, but I will continue to educate myself and therefore be able to advise others about these exciting new coins.

What about ETH?

I still love Ethereum, and the developers are in a long and seemingly endless to transition to Proof of Stake. Ethereum revolutionized crypto by popularizing smart contracts, and I think their importance will only increase. Tezos already implements smart contracts, and Cardano has the beginnings of these in place as well. So yes I will continue to discuss and be positive about Ethereum going forward. If in 2023 they haven’t gotten the PoS bus moving, I may reconsider at that point.

chrisa: