Many analysts and experts pass comments on Proof-of-Work and Proof-of-Stake mechanisms about their mining profitability. Recently, the Ethereum Co-Founder Vitalik Buterin argued that the PoW mechanism is currently punishing miners with lower 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 outline flaws in the PoS mechanism. Vitalik Buterin recently gave a counterargument to these statements about PoS. Udi Wertheimer, a popular Bitcoin atheist and former Blockchain research lead at Colu, Udi Wertheimer, pointed out some issues about the PoS mechanism through Twitter. According to Wertheimer, PoS does not provide rewards to stakers; instead, PoS forces users to stake. Wertheimer argued that PoS’s reward to stakers is a way of punishment.
The Co-Founder of Ethereum, Vitalik Buterin, joined the discussion and gave a harsh reply to these accusations made on PoS by Wertheimer. If Wertheimer’s assertion is considered for all consensus mechanisms, then PoW punishes miners whose percentage of hash power is lower than the supply of the asset. Buterin said, “And PoW penalizes anyone who has a smaller percentage of hash power than their 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 touched high in some countries, resulting in less profit in mining than ever before, and some PoW miners have started giving up their mining business. Buterin made the arguments to counter Wertheimer’s assertion.
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.