Consensus mechanism is the most special thing of blockchain, which is different from the consensus in the real world. Based on algorithmic program, blockchain reaches an agreement on the transaction data on the chain, thus creating value. The value in our life is also based on consensus. Except for the exchange price, most of the consensus does not have a serious process or force, so it is difficult to quantify. What’s interesting about blockchain is that this consensus can be measured, such as BTC reference computing power index, POS passing currency holding test, DPOS voting based and so on. Do these differences in consensus represent differences in value and risk?
We believe that this is true, that is, the cost of consensus determines the value of the blockchain. According to the current BTC model, this cost is computing power. Many people may focus on the application of blockchain, and think that as long as there are enough applications on the chain, its value is the greatest, which is a typical product thinking, not applicable to blockchain. A public chain, if its consensus cost is high enough, that is, its computing power is large enough, it is indeed more valuable than a public chain with low computing power. Many people will question this sentence, saying how can the computing power maintained by the central organization represent value? In fact, this sentence confuses value and risk. Computing power determines value, and the composition and application of computing power determine risk.
Computing power is provided by an organization. If it can not effectively share the cost of computing power, this kind of consumption is unsustainable. Computing power is provided by the market, which is the result of thousands of rational individual calculations. Each of them tries to achieve their own economic closed-loop. As long as they still provide computing power, it shows that they can achieve the net efficiency of input-output. These people who provide computing power are different, thus effectively avoiding the situation of both damage or prosperity. No matter how the incentive of the public chain fluctuates, there are always people in and people out, and there will be no collective exit at the same time. This decentralized structure reduces the risk of consensus.
If the public chain or the corresponding token has a usage scenario, it will also indirectly reduce the consensus risk. On the one hand, the consumption of tokens has been settled, on the other hand, the secondary market of tokens has a stable expectation, which enhances the purchasing power, thus bringing certainty to the computing power provider. These two aspects regulate the consensus risk of public chain, but the consensus cost always determines the value.
According to the BTC design, when the computing power is large enough, the cost of completing 51% attack will become exaggerated. Even if the computing power attack is successfully implemented, the miner can split out of the attacked block and maintain the original consensus again. The attacker can get a block chain system without consensus, which is meaningless. Therefore, once a public chain is maintained based on a decentralized consensus, it will become very powerful. The cost of this consensus, seemingly unrelated to actual production, is the foundation of value, and production activities only reduce the risk of consensus. To exaggerate, even if BTC can’t be used anywhere, or no one wants to use it, its consensus cost will remain at tens of billions every year, and it still has the current value.
Ethereum 2.0 will change the consensus mechanism from POW to POS, which has a great impact on Ethereum. This impact is mainly reflected in the evaluation of consensus cost. At present, the industry is not fully aware of this problem, but simply analyzes the impact of consensus change on application and development. I think this is putting the cart before the horse, because how much application is for a blockchain system is only a risk issue, not a value issue.
The risk of maintaining value is low for the public chain with application, and potential risk may exist for the public chain without application under the same consensus cost. We need to spend more time thinking about the comparative analysis between POW and POS, and how to compare the cost of both in a framework. In fact, many people know that for a long time, even now, the number of applications on EOS is no less than ETH from participants, but the market value is less than 20% of ETH. Some people think that it is because heavy asset projects like usdt or DeFi are not released on EOS, which is incorrect. The root cause is that the consensus cost of DPOS is far lower than that of POW. No matter how many applications there are, it can only appear that the risk is low under the given consensus cost, which cannot represent the high value. But for the cost comparison between POS and POW, there is no good framework, which needs more people to study and improve.