When it comes to Bitcoin and Ethereum, Horaizen has found that
Ethereum is closer to the direction of Ethereum, so in the end, the scalability
scalability is important (assuming absolute issuance and halving).
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From a Newsletter received this morning:
" In recent years, many blockchains have adopted or been launched with the proof-of-stake consensus mechanism, motivated by environmental concerns, energy efficiency and overall system improvement.
Bitcoin remains one of the few major cryptocurrencies to use proof of work, but it may not be as disadvantageous as many think.
Proof of Work in Bitcoin
In 2008, Bitcoin emerged as the first cryptocurrency, marking the beginning of blockchain technology and sparking an industry now valued in the trillions.
It introduced the world to a decentralized, untrusted, peer-to-peer electronic payment system - a revolutionary innovation. At the heart of Bitcoinās design is Nakamotoās unique consensus mechanism.
Here, validators, known as miners, compete to process the next set of transactions on the blockchain. Each miner expends electrical and computer resources to solve a cryptographic puzzle.
The first to succeed earns the privilege of forging the next Bitcoin block, reaping transaction fees and a bonus block reward.
Criticisms of Proof of Work
Proof-of-Work is often criticized for a number of reasons, not least its crude and inefficient use of electricity. According to some estimates, it uses almost as much electricity as the entire country of the Netherlands or ā
of Australiaās consumption.
This has been a main argument against the adoption of Bitcoin by some companies, particularly with the rise of the ESG movement in recent years. Proof-of-work is often seen as a legacy blockchain consensus mechanism, used only for historical reasons and because of Bitcoinās difficulty in updating itself.
Although these arguments have been used for years by mainstream media and critics of Nakamotoās consensus, Bitcoin supporters remain firm in the belief that proof-of-work is a feature, not a flaw.
An important part of their argument is that proof-of-work is far more decentralized and untrusted than proof-of-stake.
For example, to access the Ethereum ecosystem, someone has no choice but to buy Ethereum from another person or entity, which could be prohibitively expensive.
On the other hand, Bitcoin can be acquired using mining equipment and one of the most common currencies on Earth, electricity, and simply by purchasing the digital asset.
Anyone with an Internet connection can mine Bitcoin, and although a miner can be expensive, it costs less than the 32 ETH needed to run an Ethereum validator.
Thereās also the centralization of mining:
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This has led to the centralization and conglomeration of mining pools, where users pool their computing power and share network rewards. Currently, two mining pools could collude to take control of the Bitcoin network.
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While this sounds threatening, Ethereum faces a similar problem with its derivative liquid staking platforms such as Lido, which currently controls 32% of total Ethereum wagered.
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Since only ā of Ethereum is needed to reorganize the chain, in return for the loss of this ā of ETH, Ethereum finds itself in an equally precarious situation.
Advantages and Future Potential of Proof of Work
Although Bitcoin mining is becoming centered around large operations with warehouses full of miners, this is the most economically efficient approach decided upon by the free market.
Part of this optimization involves using the cheapest energy available: clean energy.
Indeed, some estimates place the number of Bitcoin miners using green energy at over 50%, far higher than most industries.
Bitcoin may use 0.2% of the worldās energy capacity, but this number is nominal compared to the value it generates and the energy expenditure of our current financial system, according to Bitcoin supporters.
Proof-of-work is certainly not without its problems. Bitcoinās block time is 10 minutes, unlike proof-of-stake blockchains can achieve near-instant transaction finality and are much better positioned to be an Internet currency.
Yes, solutions like Bitcoinās Lightning Network enable free, near-instantaneous transactions, but they depend on user adoption and donāt support the long-term transaction volume of the Bitcoin network.
Although proof-of-work has been condemned as an inefficient and polluting by-product of Bitcoinās legacy, the truth is much more nuanced.
Although it uses a lot of electricity, it provides a floor for Bitcoinās value and is incentivized to be as cheap and clean as possible.
Whatās more, it gives anyone with Internet access the ability to contribute to the network as a miner and earn BTC in the process without first having to buy it from someone else."
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Nice background info, thanks @Manon.
Some quick thoughts around it bc iāve been hearing the pros and cons of PoW for years:
- My guess is that thereās an increasing use of clean energy in PoW mining, as well as the argument that electricity often comes from excess production in certain areas that canāt be easily transported and used by grids (and therefore wasted)
- I just donāt know how much I buy the argument above in the aggregate, versus it being more anecdotal. Iām sure a lot of mining happens in regions where that electricity could either not be produced if the demand werenāt there or it could be transmitted to other regions. I just donāt think we know the real numbers either way, but we do know that some big amount of electricity is consumed for performing a function that may no longer be needed with other security models, like PoS.
- PoW with ASICS and massive mining pools is highly centralized and this should be concerning.
- PoW is democratic in that anyone can do it, but highly undemocratic in that you have to be capitalized well enough to do it at the scale that at least breaks even.
- PoW is just slow. Modern blockchains tend to run blocks on the order of seconds, not minutes. One of the biggest reasons to upgrade to PoS, in my opinion, is 10xāing performance so Horizen can be competitive.
- I donāt see Horizen competing with bitcoin, I see it competing with L0s and systems that drive high volumes of protocol/dApp-related txs, which require speed and throughput. So when we think of which system is more appropriate to Horizen being a relevant and competitive system, PoW is not it.
- Iāve also been in many BD conversations where customers will not touch PoW systems due to environmental concerns.
There are plenty of arguments on the side of PoW, some of them highlighted in the article above, so itās not like PoW is worthless. It has value and currently works quite well for our security, it just doesnāt scale very well for user-based systems outside of what bitcoin does, which is largely store of value.
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I like the idea of moving to Proof of Stake, but not just for moving to POS.
From the discussions Iāve had with different people at HL on how Zendoo works, and what the possibilities are regarding New Horizen mainchain upgrade, there are a few factors that could turn a PoW to PoS transition into a significant improvement, leapfrogging past multichain protocols like Avalanche, Cosmos, and Polkadot.
It seems like with the Zendoo zero knowledge based cross-chain transfer protocol, that sidechain security is reinforced by mainchain security, since the zk-based sidechain certificate is published in each block on the mainchain.
This additional level of security for a sidechain, being backed by a public blockchain, seems to me to be a feature that we would want to carry over, and possibly improve upon, as a move from PoW to PoS.
Then instead of being a follower in proof of stake, we could be a leader in PoS performance, decentralization, and security.
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I think that the third option of proposing a new ASIC resistant algorithm should also be in discussion. There is still GPU minable currencies that have seen great success and attention of smaller mining operations, and perhaps considering this āthird optionā of a plan back to asic resistance could see a return of many original Horizen Miners and community members.
One thing about this idea is Iām sure many would want to see there is a firm action plan in place if/when ASICs are found to be developed for a new algorithm, that there be revision plans in place to bring the consensus back to asic resistance.
Some examples of recent projects that have been succeeding with POS and Asic resistance are Kaspa, FLUX, Ravencoin, Dynex, IronFish
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Thank you for joining the discussions here and sharing your thoughts.
What about a DAG to replace our POW mainchain, would it be possible?
How hard compared to move to a POS?
What would be the more secured, and scalable?
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A DAG would be possible, it just is something that is not as well developed or understood, in my point of view.
There has been thousands of hours of software development effort put into optimizing different proof of stake block chain protocols, which are getting optimized to maximize the performance along all three axes of the block chain trilemma
Even though Web3 is a rapidly growing space, and bringing in new people and opportunities all the time, thereās still a race on the technology standpoint to get to market quickly.
It may be better to implement a well tested and documented layer one protocol and make small changes to optimize it For horizen based upon the unique technology developed over the years as opposed to starting fresh
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Yes changing proof of work to a memory heavy GPU mined algorithm like the original Ethereum proof of work algorithm would definitely bring GPU miners into the community.
Hobby GPU miners that hold onto what they mine were an early part of the horizen community. I was one of them.
Itās a great way to broadly distribute ownership of the coin in a fair way, because some of the miners hold onto it, and other sell it to the exchange which allows people to buy it.
Horizen has already accomplished significant fair distribution by having no pre-mine, distributing Block rewards to miners, node operators, and contractors paid in Zen by the Zen Blockchain foundation. I would argue that this gives one of the broadest distributions out there. 14 million of the projected 21 million Zen have already been distributed in this way
The issue I have with a possible change to GPU mining change is that it seems to me to be more of a sideways technology movement than forward.
I believe itās possible to gain a much larger community by building web3 optimized or infrastructure, and work to convert all sorts of existing technologies that are centralized now into a decentralized web environment. This gives us access potentially to anybody who uses Web3 to be part of the community.
This can be block chain based games, decentralized identification, tokenized real world assets, shipment tracking, and whatever new capabilities are enabled by Web3 that we have not yet thought of.
The other issue with GPU mining is that itās not a problem as long as the protocol stays relatively small. If the protocol sees measurable success then first itāll be FPGA mined, and then ASIC mined. Thatās just the technology progression that happens. And then weāll be back to the same exact discussion of what to do about ASIC miners.
This is exactly how i feel and why the HL team has been prototyping two different highly developed PoS frameworks - Cosmos and Substrate. we did a little internal prototyping competition on just the core frameworks and Substrate won out across all the dimensions we evaluated. The key here, and where I think @blockops nailed it, is that itās about (1) leveraging the strongest frameworks already in production versus building something from scratch, and (2) choosing one that optimally solves for the blockchain trilemma. Iāve long been interested in DAGs and would be curious to investigate something like that if/when it makes sense, but Substrate was chosen in what weāll soon be presenting to the community in what weāre proposing for āNew Horizenā because of those reasons above and because itās also about how we can integrate other super impressive technologies towards a specific value proposition for Horizen to earn its place as a valuable contributor to the industry. This goes way beyond just PoW vs PoS vs DAG, or even versus one blockchain framework or another, but towards an ultimate purpose that we can solve for best with a complete solution.
More deets forthcoming as we get this complete (prototype) system to testnet by the end of the month.
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haha love the analogy @AndreaLanfranchi and agree, the main thing we should be discussing wrt āNew Horizenā is the purpose, namely the problem in Web3 we think we can be the best at solving. The technology follows from thereā¦
This is how weāve been thinking about it and the prototyping work mentioned above is a tech solution to a specific problem, versus starting from the tech and trying to find a problem 
The criticism means that you care, and sometimes criticism elicits the best thoughts and responses. It can always help to cut through both bullshit and sloppy thinking
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LOL Iād be disappointed otherwise
Thereās always trade-off.
To me the biggest risk in a cryptocurrency project is that no one cares about it.
Another risk is that the technology doesnāt get to market on time to even attempt to find a product market fit.
focusing on technology optimization is important, and so is hitting your market window with a product that ships in time to make a difference
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Iām also terrified of ending up with a project that no one cares about. @AndreaLanfranchi your point about differentiation that matters for devs is also true, and I think thatās best served by using modern and modular frameworks that devs can work on components that matter to them (and to the community). Framework choice, itself, does not a project make, but itās an important point of alignment from which differentiating elements can be worked on.
but thatās assuming the differentiation canāt be made from within the framework. what Horizen Labs has been prototyping is an interesting way to solve an important problem in Web3 while using a mature, widely used framework.
Hi Rolf, Iād like you to explain quoted article in a little more detail. So that the average person can realize that Horizen could have this strength.
I do not understand why any other UTXO based protocol isnāt implementing the Zendoo cross chain transfer protocol.
There is both a UTXO to UTXO and UTXO to account model version and horizen has been running both in production for a while now.
It would seem for something like bitcoin this would be an ideal way to scale transaction throughput.
And for a protocol like Litecoin, which is always seeking to differentiate from bitcoin, I would imagine that they could put it in place.
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I canāt really say more than I said in that post until the Horizen developers take some of the experimental ideas and put them in code running on testnet.
One of the things that Iāve observed from the EON launch is that being in the middle of the decentralized finance ecosystem, multiple projects are looking to work together using composability so that different capabilities that are all contained within one project like Ethereum are spread amongst best of class multi chain projects
This article explains the different layers of Blockchain and how they referred to. Composability means using different projects for different layers and having them all work together. This article explains it well:
Much of the focus has been on Layer two operating on the Layer one of Ethereum, and this is why projects like arbitrum and optimism are getting so much attention. As well as zk based layer twos like polygon zkevm.
However there are other projects that have taken a different path that provide a base layer with multiple side chains, these projects are avalanche, cosmos, and polkadot. Since Horizen is also a project that has a base layer with multiple side chains, looking to the technology of these three projects we may be able to learn something from the open source software that they have published, and perhaps even reuse some of it, but With unique technology developed by the software engineers at Horizen in it to make it even better.
So when @finpunk says that the engineers have been looking at tender mint, implemented by cosmos, and substrate, implemented by polkadot, that may give you an idea of the direction of development.
One of the strengths of horizen that is sometimes overlooked is our investment into basic cryptographic primitive improvements. There have been a lot of cryptographic improvements in the industry, and they make a big difference.
There is definite room for improvement in the Layer zero and Layer one aspect of blockchains, and if the idea of a multi chain block chain system that is not dependent on Ethereum but operates with the Ethereum ecosystem is possible, then if we are looking to improve the horizen layer zero and layer one system, perhaps it may be possible to Take the technology demonstrated by one of these other Blockchain systems that have multiple side chains, and take the amazing creation of Zendoo, which includes recursive zero knowledge proofs as part of its strength, and make an even better layer zero and layer one.
I know this is a lot of different ideas and speculation, but until thereās an actual new block chain running to test, thatās all it is for now.
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Thank you for your kind response. Hope to see this implemented in code soon.
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I agree, this would be interesting for older UTXO-based projects to implement Zendoo. Itās just speculation, but Iād say itās some combo of them already being quite successful without having to deviate from their simple value props of being currencies; and Zendoo just being a bit complicated for the average dev. Itās a nontrivial system of hundreds of thousands of LOC and thousands of software files, and, wellā¦ZK
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