The r0ach report 14: Defining if cryptocurrency has a value or zero value from a fundamental scientific perspective

As most people know, the value of cryptocurrency is supposed to be derived from decentralization. The idea of decentralization mostly revolves around the concept of entropy. I tend to think of entropy as a form of information. For example, if you have a vase with ten different colored marbles in it and pick two out at random, you have an easily quantifiable number of possibilities. By adding an eleventh, you have increased the number of combinations, and thus the entropy. Entropy is essentially the upper bound of possibilities.

In the real world, a system that is not changing or expanding in entropy in some manner is essentially dead. This dynamic also translates into the cryptocurrency world. The expansion of entropy tends to be the key factor in preventing permanent monopolization. Depending which theory you believe, proof of work is either an attempt to replicate a somewhat living organism like the universe, or a system created knowing it would centralize by design right back into the hands of the power brokers and oligarchs who already control finance.

The alternative - proof of stake, is a closed entropy, self referencing system: essentially dead, lifeless, monopolized, and likely to monopolize even further over time. Cryptocurrency's value prospect is supposed to be based on decentralization, so it's not hard to see why the few experts that exist in cryptocurrency believe proof of stake has no value. For Steem in particular, I would not classify it as an actual pure proof of stake system, but we will get back to this point later.

As for proof of work - the basis of bitcoin - this will be an unpopular view but I really see it as just a form of externalized proof of stake in practice and not an actual open entropy system. Energy costs are not uniform across the globe so this causes the transaction validators (miners) to centralize into something resembling a matrix covering the earth:

This is a big centralization pressure, but arguably not a terminal one if you believe the energy costs on the planet are not outrageously lopsided in uniformity. The next evolution of the system was the introduction of ASIC mining. This is yet another layer of centralization on top of energy costs which I believe is not just additive, but more like multiplicative or quadratic in nature with the previous layer. Now your matrix of miners tends to look something like this instead:

It's a completely arbitrary number, but once you've reached a point where you can fit all the actors together into a large car where they can collude and form an OPEC-style cartel, doing things like blocking transactions from people they don't like, setting transaction fees abnormally high, or forking the network, you obviously no longer have any form of Nash equilibrium and the system I would say has become inherently valueless. No, this does not magically mean proof of stake now has value; it never had value in the first place.

Since this post was done on Steem, I will do the courtesy of covering that topic as well of just what exactly Steem is. Some people refer to Steem as proof of stake, but in reality, it does allow external entropy through posting for rewards with the caveat that it's required for whales not to collude or act solely for personal gain. In other words, it kinda has to be possible for whales to die over time and new people take their place, and for the power base that actually controls the system to not be an eternally small or shrinking number like proof of work.

If whales are able to game the system to maintain a permanent stranglehold on power while not allowing any others to rise up to their level, then yes, it would be virtually identical to vanilla proof of stake. I'm not attempting to promote or denigrate Steem here, just describe how it works and what the evolution of it will be.

It's entirely possible it's designed in a way where the economic system doesn't work and it dies. It's also possible bitcoin has already died due to ASICs and people just don't know it yet, and by virtue of being immune to ASICS; whether the economic system is good or bad; whether whales collude or not, Steem could keep on existing solely due to this attribute of having some open entropy interference while being ASIC immune.

(image source - a post about matrices on stackexchange.com)