Game Theory vs. Practice in Blockchain Governance.
(PoW vs PoS vs DPoS)
Please refer to here to hear my counterargument to DPoS' most common criticisms.
Bitcoin (BTC) takes the role of "store of value" - having small blocks. Any "sidechain" to Bitcoin will require its own governance, which will be required to stand on its own two feet security-wise.
Even in its most simple and scaled form, the Lightning network will still require node operators to be up and running 24/7. One must put up funds to send funds. Each lightning network node will be a single point of failure for the individual user, IE if you don't take care of your node, you can lose your funds.
Lightning network is akin to self-hosting. It brings a tremendous amount of empowerment. However, due to BTC's slow/high fee-base layer, the nodes on LN that will most likely reach the masses in use case will be big banks, big tech, and big corporations who can offer reliable infrastructure, liquidity, ease of use, and meets all legal requirements. However, not every person can become a node for various reasons, mainly from a user experience point of view. Everyone running their own LN node just isn't something that works in practice.
Any chain with a slow base layer will have large centralised actors as side chains due to their efficiency and legal maneuverability. Centralised side chains with premines (what we see today) simply cannot compete with the ease of use that large centralised corporations such as banks can offer. The only ones that will offer users a KYC-free experience will be chains that scale on the main layer, which can offer sidechains with real censorship resistance derived from layer 1, while adding novel features outside the chain, IE smart contracts.
KYC is you handing your data to someone to use their service. You will never need to KYC to set up a hive wallet and send or receive Hive with that wallet. The responsibility is on the wallet owner to report the wallet to pay taxes. That is tech saying FU; you can't KYC open-source autonomous code, which means now all you can do is require the individual's responsibility, which is how it always should be.
What will be the defacto web 3 standards? Which of the 3 has the tech.
There will be one dominant PoW system. PoW networks are not green energy native, meaning people will use green energy, but they will also use any kind of energy that they have access to. The dominant PoW network, regardless, will pool more energy than countries do. There is no way we will see two highly massed adopted PoW chains. There's not enough room on the earth for both of them.
In-game theory, the dominant PoW network has access to a "weapon" - that could easily be pointed to smaller PoW chains. PoW networks are not friends; they can never be friends; they compete for resources (hardware/electricity.) The mining that be could be dominated if focused on a smaller PoW chain and destroy it.
It all comes down to a money attack. To take over any network, PoW or PoS, requires money. You either buy enough physical resources or use a army to shut down/control miners to overtake a PoW network. PoS, you need to buy enough of that blockchains native token.
Voting must be stake or resource-based. Without the need for skin in the game to influence governance, the network becomes easily suspectable to unstoppable Sybil attacks. Stake-based voting, while in theory has its flaws, in practice it's the only viable solution when it comes to voting on governance. Other methods, such as layer 2's and communities, can adopt various governance approaches for their various tokens. However, when it comes to base layer security, stake-based offers the most defense vs. attackers.
The Bitcoin network, for example, costs around 25 billion dollars to attack right now, give or take. If Hive and Bitcoin had the same market cap, let's say 1 trillion, and at least 40% of Hive's stake was actively honest voting, it would cost over 200 billion dollars to take over the network. In theory, stake-based systems have a "checkmate" scenario where if there is 51% of the circulating supply honestly voting, it becomes impossible to take over the network. That is, if the community doesn't resist.
The best defense vs. a money attack is always the distribution of the governance. One of the best ways to achieve that in a PoW system is to have the network become widely popular, have the underlining asset rise in value, and have many miners compete over the chain's native asset. If the asset is high in price, highly coveted by miners, the network becomes more expensive to attack. The underlining asset price is very important in defending the network as a whole.
While, in theory, anyone can pick up a miner and mine, it is not possible in today's world to mine as a small miner. Small miners opt into mining pools, which is logical. If you think about it, mining pools are "delegates" - small miners want to participate in securing the network and earning rewards but are not in a place to compete in a free market realistically. It's not right to exclude these people, so mining pools solve this issue by joining forces for a common cause. Mining pools are giant pools made up of several smaller to mid-sized miners.
Network coin distribution + ability to vote without the constant overhead. Small votes must be free to vote without needing to have reoccurring unrecuperable costs due to not having enough hash rate/stake to vote and be rewarded enough to at least break even in the process.
A solid store of value brings the best out in the free market. While Bitcoin in its current form acts as a pristine store of value, future chains will communicate with Bitcoin, not build inside of Bitcoin. Bitcoin is acting like a value vacuum, which then gives the foundation for apps on outside technology to leverage its SoV, defi properties.
Lightning network is an amazing feat. True p2p sends with multisigs that retain security from the base layer is amazing. The overhead and communication mixed with overbearing regulation will make it good for certain use cases, but all of web3 will not be built on the lightning network.
Decentralized autonomous distribution of rewards for infrastructure is the only way forward. It must be easy with the least overhead to participate. It most cost NOTHING but skin in the game to vote. I buy my skin in the game, stake, vote, no overhead needed. Once you charge people to vote, you exclude smaller participants and force them to relinquish their voting power to those mining/staking pools which are most dominant and trusted.
When compared to a witness on DPOS, the problem with mining pools is that your average person can't just become a large-sized mining pool with at least some influence over the network, but your average person can become a witness. Meaning, your average person does not have the resources to support a multimillion/billion-dollar mining operation. The legal tape required to deal with handling other people's resources, the cost to operate such an operation, and the connections needed to have land/resources to sustain the operation pretty much cut out 99% of avg people.
DPOS, on the other hand, the nodes are lightweight to run, very cheap to operate, and anyone can "throw" their hat in the ring regardless of their personal stake. This means you get voted in based on your merit, not your resources. DPOS offers the most diverse set of node operators compared to any other governance model.
The goal of web3.
Account ownership; separating being the product from interacting with the service. - When you interact with web 2, you have zero leverage. Every service you use owns the assets.
The technology.
Layer 1 blockchains are slow on the first layer due to blocksize or too many processes being done on the base layer, IE smart contracts, token transfers, metadata, etc.
However, with a expensive to use base layer, sidechains become centralized. The more expensive it is to interact with the main chain, the more reliant you become on sidechains to package transactions. The most efficient sidechains in this scenario will be centralised to a large degree.
To achieve scale, we would need to separate each part of the system to fit everything into one place.
The most important aspect of blockchain is immutable record-keeping. You want your coin balance, account name, community list, and all of your text data immutable.
Smart contracts can be on a second layer. Since posting data to blockchain is very cheap, having layer 2's is much easier and safer in cenorship resistance.
Coins should be evenly distributed as possible. Having one small group or groups earn coins, overtime turns into an oligarchy. To maximize coin distribution, one must think of the nodes running the network and the network effect at large. The goal would be to have the ability to have ways to earn coins from as many different areas as possible, maximizing value and minimizing exploit.
Images & videos can be on another layer. The best thing you can do with blockchain is borderless micropayments. With this foundation, you can reward people for storing data worldwide in a frictionless way. Using p2p networks combined with blockchain reward mechanisms, you can now reward anyone anywhere.
▶️ 3Speak