Proof-of-Stake and Bitcoin: BTC shouldn’t give up its tried-and-true consensus mechanism for anyone who hasn’t had 14 years of combat testing, says Rick Delaney, Senior Crypto Analyst @OKX.
It’s been a few months since Ripple and Greenpeace and a handful of other environmental organizations showed they have no idea why Bitcoin is special. Announced in March 2022, the “Change the Code, Not the Climate” campaign seeks to urge influential bitcoiners to support a shift from the energy-intensive and tried-and-tested proof-of-work consensus mechanism to the still experimental proof-of-stake.
To justify its existence, the campaign relies heavily on the ongoing Ethereum to PoS transition. And the day Ethereum miners shut down for good approaches, it is a given that the anti-PoW crowd will increase their pressure on Bitcoin.
Proof of Stake vs. Proof of Work of BTC
In summary, the reasoning is: “If Ethereum can do it, Bitcoin can do it too.” However, that is completely beside the point. The proponents of Bitcoin value above all its predictability and the adherence to sound monetary principles. All of that becomes suspicious when fundamental changes are made to its codebase.
Much has been written about PoS and PoW and their trade-offs. While some claim that PoW offers impenetrable security, others claim that PoS achieves the same at a fraction of the energy consumption. The debate rages on, and I will not rehash the arguments here. Instead, I want to focus on something far more fundamental to why PoS is ill-suited to Bitcoin and its value proposition as the most solid money on the planet – its lack of historical precedent.
Predictability creates trust
Money is a trust system. Absent the widespread belief that that nugget of gold, £20 note, or even a handful of seashells can be exchanged for someone’s time, product, or idea, these collections of molecules are just that. We humans lend monetary value, and history always has showed again that a monetary system without trust quickly collapses.
Would gold have been valued as the planet’s most important currency, transcending space, time and cultural differences, over the past 5,000 years if its molecular structure had periodically changed? Of course not. Gold does not change and remains trustworthy. In countries with the most unpredictable monetary policies struggling against unpredictable economic conditions, confidence in currencies, and with them the currencies themselves, collapses completely.
Trust doesn’t happen overnight either. BTC has been around for 14 years with more than 99% uptime and it’s still not widely trusted. Although many changes have been made to the protocol (after lengthy debate and consensus at the network level), its main characteristics – namely its limited supply, protected by the clout of the world’s most powerful computer network – remain unchanged.
Changes, especially those without historical precedent, often raise doubts about the future. Imagine a Fortune 500 company fired its successful CEO and hired a total stranger. It doesn’t take a genius to predict the impact on stock prices. Now imagine that the entire value proposition of an asset is based on its predictability. That’s where BTC is.
“Ultrasonic money” is a farce
There is a popular meme circulating among Ethereum’s most loyal supporters. It’s a belief that anything designed to “make the numbers go up” – ie make the price go up – positions ETH as a more solid form of money than BTC, maybe even “ultrasonic money”.
It’s easy to see why the meme is popular – if BTC is hailed as solid money, our “ultrasonic money” is certainly better. Still, it makes absolutely no sense.
BTC is considered solid in part due to its limited supply. However, the 21 million hard cap means nothing if those who use it (and yes, keeping it simple means using it) don’t believe it will stay that way. If BTC were to ditch its tried and true consensus mechanism for one that didn’t have 14 years of combat testing behind it, why would its users think its finite supply isn’t the next feature to go? BTC’s resistance to such changes is a key part of its solid money status.
Proof of Stake and Ethereum
ETH, on the other hand, is not solid money. Total circulating supply and issuance is difficult to quantify, and mechanisms like EIP-1559’s fee burning only make it more unpredictable. If no one is using Ethereum, its output is inflationary. When many users are transacting, the output can be deflationary. The mere fact that no one can definitively classify its monetary policy – which appears to be subject to change – means that it is not sound money, let alone “ultrasonic money”.
Whatever you think of them, it is significant that El Salvador, MicroStrategy, and others have made a strong choice on BTC over ETH, XRP, SOL, or other cryptos. BTC is not trying to be a world computer. It does not attempt to serve as a platform for legally suspect applications. These goals, while potentially admirable in their own right, require an entirely different network, and dramatic changes are to be expected.
BTC, on the other hand, is on its way to establishing itself as the most solid form of money ever. Experimental consensus protocols are totally at odds with their mission.
Move slowly, don’t break anything
Does the current poor suitability of PoS for Bitcoin mean that ETH is worthless or that the “number go up” mechanisms that are Etherean’s champion are bad or undesirable for Ethereum? Absolutely not. The argument makes no comment on what is appropriate for a network with smart contract capabilities at the base layer.
Nor does it mean that PoS itself is necessarily flawed. There are strong arguments on both sides of the debate, but the fact that there is a debate at all means that PoS is not suitable for Bitcoin today. Tomorrow may well be appropriate, but attempts to force code changes risk destroying everything that makes BTC so special.
At the moment, PoS in the form that Ethereum implements is not yet tested at scale. There are currently numerous variations of delegated proof-of-stake, but no tens of billions worth of blockchains use the same system that Ethereum is moving towards. It’s also risky as hell going from PoW to PoS on a live network. This is why the Ethereum merger is taking so long. It’s been an unstable transition period for ETH, while BTC’s appeal stems directly from its stability.
Proof-of-Stake and BTC: Misunderstanding or intent?
Given that the “change the code, not the climate” campaign is so fundamentally at odds with what bitcoin users perceive to be the network’s core value proposition, one has to ask: why rock the boat?
On the surface, there are environmental groups that share tunnel vision over energy use — “if electricity is being used and we don’t like the use of it, it needs to be phased out.” Given that Greenpeace and the Environmental Working Group have no value in anyway Seeing bitcoin, potentially killing what makes the network special poses no problem to further their agenda. It is perfectly acceptable to them to control energy based on what they subjectively deem useless or harmful.
Now we come to Ripple. Ripple, of course, is the company behind the XRP cryptocurrency and likely believes its own jab at digital money has much to gain from Bitcoin’s demise. A conspiratorial attitude? Maybe. But given Ripple’s own actions in the crypto industry, which have always revolved around snuggling up with existing financial institutions and providing them with the tools to protect the status quo, the suspicion is warranted.
We can speculate on Ripple’s true intentions, but one thing is certain – similar attacks on Bitcoin will grow louder as the Ethereum “merger” approaches. And make no mistake, they are an attack on Bitcoin.
A video on the Change the code, not the climate website states:
“The cost of bitcoin is almost nothing.”
Yet hundreds of millions of Bitcoin users, myself included, disagree – the cost of Bitcoin is everything.
About the author
Rick Delaney is Senior Crypto Analyst @OKX. He is a former poker player turned writer with an academic background in politics and linguistics. He first discovered Bitcoin in 2013 while looking for alternative ways to fund online casino accounts. After reading deeper, BTC’s promise to divorce money from corrupt central bankers struck a chord in him. A few years later he got his start in crypto, working for media publications including BeInCrypto before joining OKX as a senior content writer and crypto analyst. His areas of interest span all corners of the industry, but truly decentralized systems have drawn him in and this is where his true passions remain.
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