Many analysts and experts comment on the Proof of Work and Proof of Stake mechanism regarding their mining profitability. Recently, Ethereum co-founder Vitalik Buterin argued that the PoW mechanism is currently penalizing miners with low hash power.
PoW Hash Power Declines
The merge from PoW to the PoS mechanism will greatly impact miners as the hash power of Proof-of-Work (PoW) continues to decline. Although the PoS promises better energy efficiency and better output, the Proof-of-Stake consensus mechanism and Proof-of-Work consensus mechanism have become the main topic for experts and analysts for a long time.
Some PoW proponents have started to highlight the flaws in the PoS mechanism. Vitalik Buterin recently contradicted these statements about PoS. Udi Wertheimer, a popular bitcoin atheist and former Head of Blockchain Research at Colu, Udi Wertheimer, explained some of the issues regarding the PoS mechanism via Twitter. According to Wertheimer, PoS does not offer rewards to stakeholders; Instead, PoS forces users to place bets. Wertheimer argued that PoS rewards for wagers are a form of punishment.
Ethereum co-founder, Vitalik Buterin, joined the discussion and strongly responded to Wertheimer’s allegations on PoS. If Wertheimer’s claim for all consensus mechanisms is considered, PoW penalizes miners whose percentage of hash power is less than the asset’s supply. Buterin said, “And PoW penalizes anyone who has a percentage of hash power less than a percentage of the coin supply. (Actually, it penalizes much more than that because profit < revenue, but you get the point).
Not Much Profit In PoW
However, Buterin’s counter arguments are correct, as miners encounter several issues in the PoW mechanism. Generally, there is significantly less profit for miners as their hash power is meager compared to the ratio of asset supply. This is because of the daily increasing competition in the mining industry, as miners are lured by mining profits, and when they enter the crypto mining market, the difficulty soars.
Additionally, the cost of mining rigs and electricity has reached high levels in some countries, resulting in low profits from mining already, and some PoW miners leaving their mining business. Buterin made arguments to counter Wertheimer’s claim.
Wertheimer’s point was about the network’s non-stakers who get diluted when more tokens are circulated into the network to reward stakers, significantly building an inflationary trend of the token.
