Point Dan Robinson: Money is not a resource

Let’s agree as an industry to always use cows and volcanos for these analogies.

Dan’s argument is that wealth in our world cannot be measured by how much “money” we have. This is easy to understand — the world cannot get richer from money being printed. Such an action only reallocates who has the ability to purchase stuff, but society as a whole won’t suddenly have more goods or services available to its population as a result.

Yet, in a Proof-of-Stake currency world, the asset that is taken out of circulation by staking is just money. So, does the quantity of goods or services in the world decrease just because someone is staking their assets? No! It just means that someone is forgoing their ability to purchase goods & services in favor of staking, which means there’s more to go around for everybody else. Staking does not destroy any assets in the real world, and does not make the world poorer.

Dan further argues that there is no such thing as “making capital inaccessible to the broader economy”. Just like a government printing money makes everyone else poorer, a person locking up his money makes everyone else richer (for the period). Because everyone else gets a little bit richer, the net amount of capital accessible to the economy remains the same.

Counterpoint Paul: Money is actually a resource

Paul’s argument is that money is not like some glass of water that you pour over a surface which all balances out no matter where it falls. It does in fact matter a lot that there are various places where capital is more concentrated, that there are “pockets” of money in useful places. A concentrated capital injection into a business rich with potential at the right time matters a much greater deal to society than a bunch of Joe’s on the street carrying around an additional $5 bill in their pocket.

Dan’s point about how there isn’t any value in a unit of money itself is valid, but there is a tremendous amount of value in the distribution. The market (ideally) allocates money to those who produce value, and relies a great deal on that there are “pockets of money” that can be used productively. Staking effectively eliminates the access to these pockets for extended periods of time, which means that some ventures that could have received funding now won’t. That is the social cost of staking.

Counter-counter-point Eric (#1)

The way I understand Paul is by thinking about how entropy works. In thermodynamics, we say:

Low entropy = order = high energy

High entropy = disorder = low energy

I think similar logic can be applied to economics.

Order = high economic potential

Disorder = low economic potential

What a “pocket of money” is, essentially, is an island of “order” in a disordered system. An intelligent distribution of money increases the total economic potential of the system.

Even though everyone might become a little bit richer when one entity locks away their money, this wealth is just evenly distributed over a grey blob. The net economic potential still suffers. So Dan’s argument is essentially “we’re not taking any pellets out of the jar!” while Paul’s argument is “true, but we’re still taking economic potential out of the jar by creating more disorder!”. The redistributed wealth does not carry the same energy as the original, concentrated capital did.

Counter-counter-point Eric (#2)

So the point above wasn’t actually a counterpoint, I just agreed with Paul. Now let’s attack Paul with a real counterpoint.

While I think Paul is right in principle, the whole picture changes when we go a bit further and think about who it is that will be staking.

Green energy for mining

Let’s first consider the fact that staking is competitive in the same way as mining. In the mining business, a miner who has access to cheaper hardware and cheaper energy will outcompete other miners, since mining raises the mining difficulty. As such, mining in general will tend towards using the cheapest energy sources available on the planet. Interestingly, no source of energy is cheaper than “trapped” ones that can not be put to use for anything else.

Examples of such trapped energy sources are natural gas, solar, wind and excessive hydropower. These types of sources are on the rise for mining, something which bitcoiners often like to pontificate about whenever the environmental impact of PoW is put under scrutiny. This green-ness only addresses the energy source however, not the externalities from manufacturing mining hardware.

Green capital for staking

This exact same principle can be applied to staking as well. What is the cheapest “capital source” for staking, that you’ll never be able to compete with? If we take Ethereum as an example, it will be people who are long ETH. A person who is long ETH, and who has already decided that he wants to be long ETH for the next 5–10 years has virtually zero economic cost for staking. And better yet, it makes no difference to the broader economy whatsoever if he’s just holding or staking. Moreover, such stakers will outcompete other stakers by being willing to accepting lower and lower yields! This “trapped capital” will outprice any “non-trapped capital“ that could have been put to productive use somewhere else, same as in the mining example above.