The Problem

The transition towards proof of stake seems to be unstoppable at this point. Proof of stake opens the possibility of scaling the unscalable. While arguments such as PoS being eco-friendly and avoiding redundant calculations are valid as selling points, that's not the core of the reason for transitioning.

As of now, Ethereum is still operating under the proof of work paradigm. One very important "side effect" of the proof of work paradigm is that miners need to run full nodes to operate. That, of course, unless miners are pool mining. While it is true that proof of work is the most important part of the consensus algorithm, a smaller, yet vital aspect is being ignored: node count. Users that have wallets that aren't created by their own full or lightweight nodes are relying on someone else's node. Even if most of the public nodes, such as Etherscan's and MyEtherWallet's, seem to be behaving properly, most users will blindly trust them.

In case the downside of this isn't evident by now, the problem lies on node centralization. As long as Ethereum operated as a proof of work blockchain, it will have the miner node "side effect". When the transition towards proof of stake is done, this incentive to run nodes is gone. If the cutoff for staking is 1000 ETH, then, according to the rich list  starting on page 340, wallets have under the minimum amount. Moreover, between the page 330 and 340 there are at least 1000 accounts with exactly 1000 ETH. As it stands, it's likely that less than 8000 people will have access to staking rewards.

Staking Promotes Centralization

Each implementation of staking tries to solve problems like scaling, collusion, etc. by creating a set of rules that works around those problems. While some clever implementations have been suggested, there is an underlying problem that was suggested above: community node participation goes down. Even if the algorithm itself works in theory and experiments, once it's out in the open, nodes just won't be there to support what we expected. To some extent, it becomes a case of oligoplutarchy: few nodes run by affluent users decide what happens.

So if the plutarchy problem is solved by the usage of staking pools or another solution, the drop of node count remains a possibility. Considering this scenario, ERC 891 can serve a purpose beyond the concept of bundle mining. I'll explain the idea behind ERC 891 and PPoW.

An Unexpected Solution

While PoS was the cure, it might also be the poison. And the poison can become the cure: PPoW. PPoW is an acronym for pseudo proof of work. The main difference between PPoW and PoW is the purpose of the hashing. Proof of work is a race to find hashes to add transactions from the mempool to the blockchain. Pseudo proof of work calculates hashes from private keys into addresses to claim address-based rewards.

How does PPoW help secure Ethereum if not by block mining? It incentivizes users to run nodes, full or pruned. You can read a more detailed description of PPoW on the GitHub issue, but the general idea is that the claimable amount of tokens is a function of the address. ERC 891 compliant tokens have a function that checks the reward amount from the calling address. Depending on how the function is defined, tokens may be

• scarce (low chance of finding an address with claimable balances),
• limited (chance of finding a reward goes down as supply goes up),
• highly inflationary (chance of finding addresses with balance is high),
• or any variation that tries to rely solely on address and circulating supply.

How does this solve the node count problem? In order to be able to mine addresses, the only way that will not end up in DDoSing MEW, MyC, or Etherscan is to run new nodes. If ERC 891 prevalence goes up, people will either have to run local miners with personal nodes or trust mining pools. In this case we don't care if there is GPU mining or ASIC mining; depending on how the reward function is designed, more hashpower will not necessarily kill the PPoW tokens via centralization. I hope that developers come up with ways to protect or distribute their PPoW tokens in ways that suit their needs.

Conclusion

If the community is willing to overlook the minor problem of PoW being eco-unfriendly*, then PPoW could solve the node count problem by giving users a reason to run their own nodes. While some users will be paranoid enough to run local wallets with geth, the majority of the users will simply keep on using API-based nodes. Miners will flee to other PoW currencies because stopped rigs are lost money. Maybe I am overblowing this issue, but it is a worrying possibility that Ethereum could become an oligoplutarchy.

References and Links

Poelstra Andrew, On Stake and Consensus, 2015. https://download.wpsoftware.net/bitcoin/pos.pdf

ERC 891, 2018, https://github.com/ethereum/EIPs/issues/891

CehhCoin ANN Thread: https://bitcointalk.org/index.php?topic=2954666

CehhCoin Etherscan page: https://etherscan.io/token/0x4f38f4229924bfa28d58eeda496cc85e8016bccc