Let us review the history of BTC. It started with CPU mining, which then led to GPU mining. After GPUs, ASICs (Application-Specific Integrated Circuits) then became a popular mining method. Later on these individual mining methods then switched to the use of mining pools. The motivation behind mining is based on the rewards miners can obtain. The use of centralized computation power increases the stability and value of profit that can be earned from mining.
PoS also achieves this. When a blockchain system initializes PoS, the initial quantity of stake is written in the genesis block. Then there are only the initial holders of stake who are able to produce blocks and obtain rewards. If the stakeholders do not sell their stakes, the system is centralized and monopolized from the very beginning.
Although PoW and PoS will eventually become centralized, the time it takes for centralization to occur is different. PoW is not centralized an early stage of the process, whereas PoS can be centralized from the start.
Why can PoW prevent early centralization? The philosophy behind PoW is “computation power = BTC”, so computation power is the external property of the system. For PoS, the stake is the internal property of the system. This is the key difference between them.
Some blockchain systems use PoW from the beginning, then later switch to PoS. Ethereum is an example of this transformation.
Let’s look at EOS as an example. It ICOed on the Ethereum blockchain and sold its stakes in tokens. The tokenized stakes were mapped to the main net which then became the initial stake.
So PoW, PoS and DPoS become centralized and monopolized quickly if the external resources and stakes are not imported. The speed at which this occurs correlates with the quantity of the imported resources. It is similar to the laws of thermodynamics in physics.
If the stakes and resources can enter and exit the system seamlessly, the idea of decentralization will not be challenged. The system will be balanced by the resources between decentralization and monopolization. So cross-chain technology and exchanges are needed.
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