Answering Vitalik Buterin's 7 Hard Questions For the Blockchain World Part 6: Proof of Centralization

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Erin highlighted the centralizations issues present within the Proof of Stake consensus model in his first hard question for the blockchain world, noting that Bitmain and affiliated pools now control a significant portion of all Bitcoin - the largest PoS network - hashpower.

PoS, unlike PoW, doesn't require network participants to use inordinate amounts of energy to solve complex computations in order to keep a blockchain immutable.

Instead, PoS network participants are able to mine a percentage of transactions in accordance with their current "Stake" in the network - or the proportion of network tokens that they possess.

PoS financially disincentivizes malicious network participation by putting cryptocurrency holdings directly at stake, rather than a disincentivizing malicious activity by forcing participants to spend money on energy.

The manner in which PoS distributes rewards to forgers creates the opportunity for monopolization in a very different way to hashpower centralization in PoW networks.

In a PoS network, forgers receive rewards in proportion to the amount of value they are able to stake.

In order to participate in a PoS network, forgers need only be online and possess tokens to stake.

The inevitable impact of economies of scale on smaller operators within PoS networks could lead to these operators dropping out of the network, resulting in the organic centralization of the network.

Network participant geographic distribution for active PoS networks such as Stratis and PivX reveals a far more distributed model, with network participation spread across multiple countries.

Ultimately, PoS is not immune to the threat of centralization, but it's arguable that it's more resistant to centralization given the lower barrier to network participation and data available on PoW versus PoS network distribution.

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