Singapore, 13 November — Sunny King, the Inventor of Proof of Stake Consensus Mechanism and Founder of V SYSTEMS has made his first-ever “public appearance” with Brandon Chez, CEO and Founder of CoinMarketCap today at “The Capital”, to talk about Proof of Stake consensus, bitcoin, quantum computing and more.
1. Brandon: What was the inspiration for proof of stake consensus?
Sunny: It’s not very interesting to just clone Bitcoin isn’t it, so what if something new and innovative can be tried. So how about trying to see whether energy consumption is required for decentralization? It’s fortunate that when you put enough belief in the merits of proof-of-stake and it turned out that indeed, it can completely replace proof-of-work and eliminate the energy problem.
2. Brandon: When you first invented Proof of Stake, how did you envision the impact of such a change to the consensus algorithm on a blockchain? Did you have any fears then, and did any of them come to pass?
Sunny: The important step was actually have some faith in the merits of proof-of-stake, that it can stand as independent consensus algorithm. Otherwise maybe a more incremental design would be attempted instead. The important result for the effort is the solution to the energy consumption problem. Energy issue is not just an environmental or cost issue, it is actually the horizontal scalability problem.Early on with Peercoin there was a weakness against stake grinding and it was solved in the beginning of 2013. This was the problem that an attacker can greatly amplify their minting power by exploiting some weakness in the protocol. Afterwards Peercoin has been quite stable. Peercoin continues to demonstrate the merits of proof-of-stake consensus to the industry.Others mention nothing-at-stake as a potential problem to proof-of-stake consensus, but I think this is highly debatable. This was the assumption that minters would want to mint on all the chain forks thus preventing the formation of consensus. However we must realize the thesis of proof-of-stake is that if one becomes a stake-holder, then one is incentivized to do good for the network. Would a rational minter value a chance for minor rewards over the potential damage that can be done to the whole network? The answer is obviously no in my opinion. In practice we don’t see people motivated to attack the network this way at all.
3. Brandon: When we explore the yields of a network running Proof-of-Stake algorithms, how does its economic incentives and outcomes differ from that of a Proof-of-Work blockchain? Can you give some examples?
Sunny: In proof-of-stake systems, network still gives out minting reward to the minters so it’s sort of like what proof-of-work does. But since it’s the coins not energy that’s driving the service so there is naturally the concept of interest rate or yields with proof-of-stake minting service. It can be viewed that the users who do not participate in minting subsidizes those who participate in minting, as they are providing for the network security. Within its own economic system this can be considered a risk-free interest rate. From the point of view outside the system, one is basically losing to inflation if one does not participate in minting. Typically a fixed inflation rate is chosen to sustain minting market and maintain a fixed proportionate level of network security. For example, peercoin uses 1%, v systems uses 5%.
For proof-of-work systems there is actually also an inflation rate, except it was masked by Bitcoin’s capped design. Bitcoin wanted to be a better store of value than gold, so it deliberately set a cap for total supply. Then the inflation rate approaches zero, geometrically, actually a pretty fast reduction to zero inflation in math terms. But this is at the expense of network security not keeping up with time. In terms of the ratio between mining market revenue and bitcoin’s market cap, the relative security level is dropping. So in the long run it is rather dependent on the transaction fee market to make up the lost revenue of the miners. For a fair comparison to proof-of-stake, when we pick a fixed level of security relative to market cap, then a nonzero inflation rate will still show up. The alternative design approach is to acknowledge the minimum inflation rate needed to secure the network but let transaction fees be destroyed to counter inflation. In my opinion this is a better approach that can provide better and more stable security to the network while conditionally preserving the strong store-of-value properties.
4. Brandon: Do you feel that Proof-of-Stake has finally reached its tipping point after so many years? What else is still missing from the ecosystem that you would like to see?
Sunny: I think it is getting there. Not yet from a total market cap point of view, but maybe already getting there in terms of number of projects adopting a variation of proof-of-stake. At V SYSTEMS now we are working on providing a more streamlined way of creating new blockchains, it will be much easier and cost effective to create new blockchains. More and more people will be able to see the competitive advantage of proof-of-stake or one of its variations, I think the adoption will become even more prevalent.
5. Brandon: I’ve heard that you are supportive of the long-tail of crypto. Today, we have thousands of crypto assets listed on CoinMarketCap. How do you feel about the talk around the consolidation towards bitcoin, and what do you feel is the outlook for the thousands of other crypto assets in the long run?
Sunny: Yes, not only that, I doubt that even in base cryptocurrencies Bitcoin might not be able to dominate like that in the long term. So for the thousands or even more other cryptos, don’t lose hope yet and take it to Bitcoin :) The fact of the matter is that we need more than just currencies, it’s going to be a whole economy so plenty of space for all kinds of blockchains. For a healthy and prosperous economy the base currency is critical but only a small part of it.
Someone might think Bitcoin will continue to dominate forever but it is hard. Bitcoin was not gold afterall, it was the first cryptocurrency but in the technology world the challenge for domination can be daunting. Besides, Bitcoin has some risk factor with its design coming up probably within the next 10 to 20 years, when the generation of new Bitcoins reduces to minimal. We shall see whether Bitcoin can sustain a good enough mining market by collecting transaction fees. Now even if it manages that, there are still concerns that 51% attacks might eventually get to Bitcoin. Remember this year we see it can get to a top 20 project. If this type of event happens to Bitcoin eventually, of course it would not bode well for its long term dominance.
6. Brandon: According to quantum theoreticians, quantum computing can be a boon for verifying the integrity of PoS selections. Since quantum computers like Google’s Sycamore could already run calculations like this, what impact do you see this having on not just PoS but on cryptography in general?
Sunny: I wouldn’t be too worried. Let’s challenge google for an integer factorization first, before more meaningful claim to supremacy is taken at its face value. My understanding is that quantum computing for the foreseeable future will be limited to special domain computations. Proof-of-stake doesn’t require much computation so there is not much benefit there. If proof-of-work mining is sped up don’t see a huge problem as we already experienced ASICs. As to public key cryptography, if it turns out to be a problem it’s gonna be industry wide to entire technology sector not just blockchains, so pretty sure there will be new public key systems to migrate to.
7. Brandon: What projects are you involved with today? How do you think Peercoin and Primecoin are doing today?
Sunny: Nowadays I mainly design for V SYSTEMS, whose goal is to bring platform services to the blockchain industry of the future with a focus on cloud and database technology. So it’s more of an infrastructure player. The drive is to make blockchain databases easier and more competitive against centralized database technology. The first milestone was designing supernode proof-of-stake for V SYSTEMS main blockchain. On the side I am still a member of Peercoin community and also maintains Primecoin.
Peercoin has quite good community governance and a quality development team. It is continuing to prove the merits of proof-of-stake consensus technology to the industry. And primecoin, I have some special fond of it, would love to see it keep breaking world records in prime numbers. The prime proof-of-work was designed to completely replace hashcash for a more interesting or useful proof-of-work. Sometimes I make the joke that these record twin prime chains are good indicators on the Kadashev scale of galactic civilizations :)
8. Brandon: What do you think about Facebook Libra?
Sunny: Libra is kind of a mixture between stablecoin and fiat, or a basket of fiats, like Special Drawing Right (SDR) on blockchain, so I don’t class them together with cryptocurrencies. Sure it uses blockchain technology, but it’s not comparable to cryptocurrencies. In my opinion Bitcoin introduced two very important concepts which makes it a next-generation currency. One is that it can be viewed as a digital form of gold that’s market based currency rather than the fiat we have been used to in the past century. The other important contribution of bitcoin is that it is a strong private property, that is, it is more private than the private property that we know in the past, more difficult to steal, more difficult to confiscate. Systems like Libra or China’s DCEP most likely would miss at least one of those aspects, or both. They are closer to digital fiats instead.
9. Brandon: Can you talk about the future of blockchain technology and cryptocurrency?
Sunny: Both are on an optimistic path I think. Blockchain technology is now widely accepted to be one of the major technology innovations, together with AI and quantum computation. As to cryptocurrency, people are more open to the ideas as well. I believe strong private property will form a core part of the future virtual economy.
10. Brandon: What kind of activities do you do for fun?
Sunny: I used to play go a bit, though only at pretty amateurish level but it’s fun. I would enjoy playing AlphaGo with extreme handicap I think. I also enjoy hiking and nature quite a lot.
Please watch the full video of the Fireside Chat here:
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