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Proof-of-Stake Would Kill Bitcoin (And Maybe That’s the Idea)

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Proof-of-Stake Would Kill Bitcoin (And Maybe That’s the Idea)

Proof-of-Stake and Bitcoin: BTC should not abandon its tried-and-true consensus mechanism for one that has not had 14 years of battle testing, says Rick Delaney, Senior Crypto Analyst @OKX.

It’s been a couple of months since Ripple and Greenpeace, and a handful of other environmental organizations, showed they have no clue why Bitcoin is special. Announced in March 2022, the “Change the code, not the climate” campaign attempts to pressure influential Bitcoiners into supporting a switch from the energy-intensive and proven proof-of-work consensus mechanism to the still-experimental proof-of-stake.

To justify its existence, the campaign leans heavily on Ethereum’s ongoing transition to PoS. And, as the day Ethereum’s miners switch off for good approaches, it’s a given that the anti-PoW crowd will ramp up its pressure on Bitcoin. 

Proof-of-Stake Vs BTC’s Proof-of-Work

Boiled down, the rationale is “if Ethereum can do it, so can Bitcoin.” Yet, this misses the point entirely. Above all, Bitcoin’s supporters value its predictability and adherence to sound monetary principles. All of that becomes suspect if fundamental changes are made to its codebase.

Much has been written about PoS and PoW, and their tradeoffs. While some claim PoW offers insurmountable security, others claim that PoS achieves the same at a fraction of the energy consumption. The debate rages on, and I’m not going to rehash the arguments here. Instead, I’d like to focus on something much more fundamental to why PoS is an ill fit for Bitcoin and its value proposition as the planet’s soundest money – its lack of historical precedent. 

Proof-of-Stake Would Kill Bitcoin (And Maybe That's the Idea)

Predictability breeds trust

Money is a system of trust. Without the widespread belief that this lump of gold, £20 note or even a handful of seashells can be exchanged for someone’s time, products or ideas, these collections of molecules are just that. It’s us as humans that impart monetary value onto something, and history has shown time and time again that a monetary system quickly falls apart without trust.  

Would gold have been prized as the planet’s premier money, transcending space, time and cultural differences, for the last 5,000 years if its molecular structure periodically shifted? Of course not. Gold doesn’t change and remains trusted. In nations with the most unpredictable monetary policies struggling against erratic economic conditions, trust in currencies and, therefore, the currencies themselves collapse entirely.

Trust doesn’t emerge overnight either. BTC has been around for 14 years with more than 99% uptime and is still not universally trusted. Although many changes have been made to the protocol (after lengthy debate and finding consensus at the network level), its key characteristics – namely its finite supply protected by the clout of the world’s most powerful computing network – remain the same. 

Changes, particularly those lacking historical precedent, often invite doubt over the future. Imagine a Fortune 500 company fired its successful CEO and brought in a complete unknown. It doesn’t take a genius to predict the impact on its share price. Now imagine an asset’s entire value proposition is based on its predictability. That’s where BTC is at.

“Ultrasound money” is a farce

There’s a popular meme that circulates among Ethereum’s staunchest supporters. It’s a belief that anything designed to make “number go up” – i.e., make the price rise – positions ETH as a sounder form of money than BTC, perhaps even an “ultrasound money.”

It’s easy to see why the meme is popular – if BTC is celebrated as sound money, surely our “ultrasound money” is better. Yet, it makes absolutely no sense.

BTC is considered sound in part because of its finite supply. However, the hard 21 million cap means nothing if those using it (and yes, simply holding it is using it) have no faith that it will remain this way. If BTC were to abandon its tried-and-true consensus mechanism for one that has not had 14 years of battle testing, why should its users believe its finite supply isn’t the next feature to go? BTC’s resistance to such changes is integral to its classification as sound money.

Proof-of-Stake Would Kill Bitcoin (And Maybe That's the Idea)

Proof-of-Stake and Ethereum

ETH, on the other hand, is not sound money. Its total circulating supply and issuance are difficult to quantify, and mechanisms like EIP-1559’s fee burn only make it more unpredictable. If no one uses Ethereum, its issuance is inflationary. If many users make transactions, its issuance may be deflationary. The very fact that no one can definitely classify its monetary policy – which apparently remains subject to change – means it is not sound money, let alone “ultrasound money.”

Whatever you think about them, it’s telling that El Salvador, MicroStrategy and others went big into BTC and not ETH, XRP, SOL or any other crypto. BTC isn’t trying to be a world computer. It isn’t trying to serve as a platform for legally suspect applications. These goals, possibly 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 soundest form of money ever to exist. Experimental consensus protocols are completely at odds with its mission.

Move slow, break nothing

Does PoS currently being a poor fit for Bitcoin mean ETH is worthless or that the “number go up” mechanisms Ethereans champion are bad or undesirable for Ethereum? Absolutely not. The argument makes no comment on what is suitable for a network with smart contract capabilities at the base layer.

It also doesn’t mean that PoS itself is necessarily flawed. There are strong arguments on both sides of the debate, but the fact that there even is a debate means PoS is not suitable for Bitcoin today. It may well be appropriate tomorrow, but attempts to strongarm code changes risk destroying everything that makes BTC special.  

For now, PoS in the form Ethereum is implementing is untested at scale. There are numerous variations of delegated proof-of-stake currently live, but no blockchain worth tens of billions uses quite the same system as Ethereum is moving toward. It’s also hellishly risky to switch to PoS from PoW on a live network. That’s why Ethereum’s merge is taking so long. It’s been an unstable transitionary period for ETH, while BTC’s appeal stems directly from its stability.

Proof-of-Stake Would Kill Bitcoin (And Maybe That's the Idea)

Proof-of-Stake and BTC: Misunderstanding or malintent?

Given the fact that the “Change the code, not the climate” campaign is so fundamentally at odds with what Bitcoin users find to be the network’s core value proposition, one has to raise the question: Why rock the boat?

On the surface, you have environmental groups that share a tunnel-vision view on energy use – “if it uses electricity and we don’t like the application, it needs eradicating.” Given that Greenpeace and the Environmental Working Group see no value in Bitcoin anyway, potentially killing what makes the network special in order to forward their agenda poses no issue. For them, policing energy based on what they subjectively hold to be useless or detrimental is perfectly acceptable.

Now, we come to Ripple. Ripple, of course, is the company behind the XRP cryptocurrency and presumably believes its own stab at digital money has a lot to gain from Bitcoin’s demise. A conspiratorial take? Perhaps. But, given Ripple’s own actions in the crypto industry, which have always revolved around cozying up to existing financial institutions and providing them the tools to protect the status quo, suspicions are warranted.

We can speculate as to Ripple’s true intentions, but one thing is certain – similar attacks on Bitcoin will get louder as Ethereum’s “merge” approaches. And make no mistake, they are an attack against Bitcoin. 

A video on the “Change the code, not the climate” website states:

“The cost to Bitcoin is almost nothing.”

Yet, hundreds of millions of Bitcoin users, myself included, disagree – the cost to Bitcoin is everything.

About the Author

Rick Delaney is a Senior Crypto Analyst @OKX. He is an ex-poker player turned writer with an academic background in politics and linguistics. He first discovered Bitcoin in 2013 while searching for alternate ways to fund online casino accounts. After reading deeper, BTC’s promise to divorce money from corrupt central bankers struck a chord within him. A few years later, he got his start in the crypto space working for media publications, including BeInCrypto, before joining OKX as the exchange’s senior content writer and crypto analyst. His fields of interest span all corners of the industry, but truly decentralized systems are what attracted him, and it’s here that his real passions remain.

Got something to say about Proof-of-Stake and BTC, Proof-of-Stake generally, or Proof-of-Stake in relation to Ethereum, or anything else? Write to us or join the discussion in our Telegram channel. You can also catch us on Tik Tok, Facebook, or Twitter

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Bitcoin (BTC) Nearly Taps $25,000 Level For the First Time Since June

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Bitcoin (BTC) Nearly Taps $25,000 Level For the First Time Since June

Bitcoin (BTC) is showing several bullish signs in the daily time frame but has yet to break out from a short-term corrective pattern.

Bitcoin has been moving upwards since reaching a long-term low of $17,622 on June 18. On July 19, it broke out from a long-term descending resistance line, which had been in place since the end of March. 

On Aug. 11, BTC reached a local high of $24,918, which was the highest since June 12. However, it failed to sustain this increase and created a long upper wick in its daily candlestick (red icon).

If the upward movement continues, the closest resistance area would be found at $29,370. This target is the 0.382 Fib retracement resistance level.

An interesting reading comes from the daily RSI, which moved above 50 at the same time which the price broke out from the descending resistance line. 

Since then, the RSI has created an ascending triangle (dashed), which is often considered a bullish pattern. The indicator is currently at 61, right at the resistance line of this pattern. 

Therefore, a breakout above it would likely also cause the price to accelerate upwards.

Short-term BTC pattern

Despite the relative bullishness from the daily time frame, the six-hour chart shows that BTC has been trading inside an ascending parallel channel since the June 18 bottom. Such channels usually contain corrective patterns, meaning that an eventual breakdown from it would be expected. 

Moreover, the price has created what resembles an even shorter-term double top (red icons), which is considered a bearish pattern made at the resistance line of the channel.

On Aug. 9 (green circle), the price rebounded from the midline of this channel and at a short-term ascending support line. 

So, whether BTC breaks out from the channel or breaks down from the support line will likely determine the direction of the future trend.

Wave count analysis

The main wave count indicates that BTC is likely in wave three of a five-wave upward move (black). The sub-wave count is shown in yellow, and also suggests that the price is in wave three. So, this seems to be a 1-2/1-2 wave formation. If correct, it would mean that the upward move will accelerate in the near future. 

In order for the count to remain correct, Bitcoin has to hold on above the slope of the original 1-2 (black).

The most likely long-term wave count is also bullish, aligning with the proposed short-term count.

For Be[in]Crypto’s previous Bitcoin (BTC) analysis, click here

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Binance recovers the majority of funds stolen from Curve Finance

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Binance recovers the majority of funds stolen from Curve Finance

Binance recovered and froze around $450,000 worth of the stolen assets, which is around 80 percent of the stolen funds.

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Binance recovers the majority of funds stolen from Curve Finance

Crypto exchange Binance has recovered a big part of the funds from the recent hack that targeted the decentralized finance (DeFi) protocol Curve Finance. 

In a tweet, Binance CEO Changpeng Zhao announced that the exchange has frozen and recovered $450,000 of the stolen assets, which is more than 80 percent of the stolen funds. According to Zhao, the hacker tried to send the funds to the exchange in various ways but was detected by Binance. The exchange is currently working to return the funds to their rightful owners.

The Curve Finance team detected the hack on Tuesday and alerted their users to refrain from using their website. An hour after the warning, the team announced that it was able to find and resolve the issue. However, the attackers were still able to hijack around $537,000 worth of USD Coin (USDC) before the issue was resolved.

According to experts from the blockchain analytics firm Elliptic, a hacker compromised the domain name system (DNS) of Curve Finance, which ended with malicious transactions getting signed. The experts told Cointelegraph that the funds were then sent to various exchanges and crypto mixers in an attempt to hide the trail. In the end, the funds were sent to Binance and were caught by its team.

Related: Cross-chains in the crosshairs: Hacks call for better defense mechanisms

This is not the first time this week that the good actors in the crypto community have worked to return stolen funds. On Monday, whitehat hackers and researchers returned an estimated $32.6 million worth of USDC, Tether (USDT) and other altcoins to Nomad, following the recent $190 million exploit.

The Curve Finance exploit is only one of the many attacks that happened in 2022. According to analytics firm Chainalysis, $2 billion worth of funds were drained because of cross-chain bridge hacks. This is 69% of the overall stolen amount in the year.

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Institutional staking won’t take off unless asset lock-up solved: Coinbase CFO

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Institutional staking won’t take off unless asset lock-up solved: Coinbase CFO

Coinbase’s new institutional-focused staking product won’t be a “near-term phenomenon” while liquid staking is still being worked out.

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Institutional staking won’t take off unless asset lock-up solved: Coinbase CFO

Institutional staking of crypto assets, including the post-Merge Ethereum, could become a “phenomenon” in the future, but not while their assets still need to be “locked up.”

Speaking during a Q2 earnings call on Tuesday, chief financial officer Alesia Haas noted that she didn’t expect their new exclusive institutional staking service, rolled out in Q2, to be a “near-term phenomenon” until a “truly liquid staking option” is available:

“This is the first time we had the products available. Previously, the way that institutions could have access to staking is via Coinbase Cloud […] But offering it as the delegated staking service similar to what we have for retail customers.”

However, Haas said it was still “early days” for their new staking service, adding they’ll likely only see a “real material impact” when they have created a liquid staking option for post-Merge Ethereum, also known as Eth2.

Liquid staking is the process of locking up funds to earn staking rewards, while still having access to the funds. 

Haas explained that many financial institutions “don’t want their assets held indefinitely:”

“So when you stake ETH2 you are locking in your assets into Ethereum until the Merge and then some period after. For some institutions, that liquidity lock-up is not palatable to them. And so, while they may be interested in staking, they want to have staking on a liquid asset.”

Haas reaffirmed this issue is “something we are looking to solve,” and added that once this liquid staking is available for financial institutions that can pool in funds at higher proportions, “we’ll see the real material impact of institutional revenue.”

Related: Coinbase partners with BlackRock to create new access points for institutional crypto investing

Investors and institutions have been able to access Coinbase’s delegated staking service through Coinbase Prime, which was first launched in Sep. 2021. The platform also offers other integrated services, such as access to a custody wallet with enhanced security, real-time crypto market data and analytics, and other crypto-native features like decentralized governance.

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