Will PoS destroy ETH (or cryptocurrencies in general)?
I know this has been asked a million times over, and I know it will be in phases, and I know there is a lot of information out there already.
Many argue that cryptocurrencies are "worthless" as they are not physical or tangible (at least in the same sense that precious metals and fiat currencies are). Many others argue that fiat currencies are "just as worthless", as they are merely pieces of paper being traded for things we use in everyday life. In fact, as money can be digitally transferred more easily than ever before, and with the high usage of debit/credit cards, it could be said that this "paper money" we use is no different than cryptocurrencies. Maybe currencies are worth less in this sense!
That aside, I have always looked at it this way. There are two steps to putting value on something.
- Humans put value on anything that is hard to obtain. Gold, diamonds, platinum, etc. are all sparse relative to other metals such as copper or iron. And so humans, for whatever reason, have always put more value on these shinier metals. Finding these metals are getting harder as we continue to mine. It is inherently costly to extract these precious metals from the Earth. We spend money on machinery, electricity, diesel fuel, human resources, and research all so we can dig up a bunch of metal. And this has always worked out for us. I don't foresee this changing anytime soon.
PoW has effectively done this for us. We need to spend money on motherboards, GPUs, ASICs, electricity, etc. so that we can dig up digital coins from this place we call the blockchain. As a result, we put value on these coins.
- We put value on something that we adopt. Fiat currencies are not usually backed by anything tangible like gold anymore. It's just that over so many years, we've allowed to let our jobs pay us in currencies, and businesses have allowed us to pay for this using these same currencies. Somewhere down the line, we stopped associating a currency with the resource which was hard to "mine" (like gold). This is great because now I don't have to dig a hole a mile deep just to find gold so I can buy a burger.
Cryptocurrencies haven't yet gotten there. Yes there are businesses that accept it as payment, and yes there are these ATM machines which let us withdraw crypto from our wallets. But the point is that it's not widely adopted yet and so the actual value of ETH or BTC will fluctuate wildly. It's like crypto is a stock whose value is based on what people are willing to pay for it. It's not a currency in the sense that the value of 1 fiat currency (relative to another fiat currency) is not going to change significantly over days or weeks.
- People also put value on things which are extremely useful, such as oil. This is related to (1) because provided it is in abundance, it is useful but can still be cheap. It is only when it becomes sparse and difficult to extract that it becomes of high value relative to other "valuable" things. For this reason it's similar enough to point (1).
And this brings me to my point. I am only somewhat familiar with PoS but it doesn't seem like the PoS model will force anyone to spend any money or time into earning more ETH. No GPUs, no electricity, no reward based on how much work you put into it. Just reward based on staking. Does this not break the ideas above (these are only ideas that I think humans have historically followed, I am open to seeing things a lot differently)? If what I said above was true, maybe crypto will jump up for a while, but long term it could fail due to there being no intrinsic value associated with one coin (since that one coin did not require some sort of "effort" to extract from the blockchain). I think that blockchain is a very powerful concept, but when talking strictly about the value of cryptocurrencies, the PoS model seems a bit flawed in this sense. So many people criticize crypto as being bad for the environment due to its high electricity usage. The same can be said about gold and lithium mining. But we realize there is simply no other way to get lithium out of the ground. It costs money to dig. PoS mitigates this in the digital world and says "here's a better way to earn ETH without spending a dime on electricity!", but does that not fundamentally mean that the cryptocurrency becomes worthless? If I magically found this way to freely teleport millions of tons of diamond from Neptune onto Earth, doesn't the diamond ring or necklace you are wearing basically become worthless (or at least worth less than before)?
I am not saying I am for or against cryptocurrencies. I'm not saying they are worth a lot or worthless. I'm just looking for someone to share their thoughts on my take on this.