Jason lowery on proof of work and proof of stake

Proof of Stake versus Proof of Work with Jason Lowery | Bitcoin Fundamentals with Preston Pysh Ep. 098

Check out the Investor Podcast’s Episode Page & Show Note

Key Takeaways

  • Pack animals use a proof-of-power protocol to establish a state of legitimate ownership consensus and chain of custody of their property
  • As Sapiens evolved, we came up with imaginary alternatives to the physical proof-of-power protocol by appointing people with imaginary power through the creation of abstract power hierarchies 
  • Agrarian society abandoned physical power hierarchies and adopted abstract power hierarchies which granted people of rank resource control authority 
    • Physical power projection to settle disputes over property was morally condemned because it was energy-intensive and often resulted in injury 
  • Throughout history, god-kings have taken advantage of their trust-based, abstract power hierarchies and exploited their domesticated populations to egregious scales
  • The benefits of using abstract power (efficiency and no physical injuries) tend to break down over time because the rulers must be trusted not to exploit the people they rule
  • It is easier to exploit people through positions of higher rank (abstract power) than exploiting them through methods of physical power
    • God kings with abstract power can expand their claim on resource control authority at zero cost, while the pack animal in a proof-of-power hierarchy must exert large amounts of energy and risk high costs to expand its control authority 
  • Abstract power hierarchies are very attractive to parasites, sociopaths, and individuals that want a lot of control and authority over resources because all they need is “rank”
  • If a god-king has abstract power over machines, and people become increasingly more dependent on those machines, then the god-king’s power extends to power over people too 
  • “People today in cyberspace have levels of abstract power that would make the pharaohs blush.” – Jason Lowery
  • Proof-of-stake is effectively proof-of-rank: choosing proof-of-stake over proof-of-work forfeits your capacity to project physical power to defend yourself in cyberspace
  • Proof-of-work secures your access to your property by preserving your ability to impose severe physically-prohibitive costs on anyone that would try to take it from you, deny your access to it, or exploit your rules
  • Bitcoin is a philosophy about determining the basis for establishing resource control authority and reaching a consensus on the legitimate state of ownership and chain of custody of an underlying piece of property
  • In a proof-of-stake system, a single entity that controls 60% of all stake can split that stake among millions of validators and then use those validators to tactfully withhold specific transactions from the blockchain
    • Tactfully withholding transactions = resource control authority 
  • People are different and have different ideological beliefs; it’s unlikely that everyone operating on a proof-of-stake network will agree that the censored chain is bad
  • Currently, Jamie Dimon is the apex predator in his abstract power hierarchy; as the god-king, he will do whatever he can to maintain his abstract power
  • Abstract-power-god-kings such as Vitalik Buterin and Jamie Dimon try to get people to pay attention to everything but Bitcoin, a protocol that uses physical cost functions and decentralizes the physical control authority over resources
    • They cannot have resource control authority over Bitcoin, so they lure you into the abstract power hierarchy that they control 
  • Most crypto projects copy Bitcoin’s software, remove the proof-of-work component of it, and replace it with an “innovation” that does one thing and also grants them resource control over the ledger
  • Vitalik Buterin does not understand that the physical components of the system is what contributes most to security
  • We don’t ask meteorologists about the technical merits of cloud computing; just because proof-of-work’s primary use case has the word “coin” in it does not make the United States Treasury Department or the Federal Reserve qualified to talk about the technical merits of proof-of-work
  • If Bitcoin is a power projection technology and a new way for people to defend themselves, or particularly their property, then the United States must take it extremely serious from a national strategic standpoint 
  • “My recommendation to any policy maker that might be listening to this: the last people you should be listening to are bankers and financiers about power projection technology.” – Jason Lowery
  • Just like humans use watts to project physical power in the domains of land, air, sea, and space, humans will use watts to project physical power in cyberspace via proof-of-work to make the cost of attacking them as high as possible 

Intro 

  • Jason Lowery (@JasonPLowery) is a US Space Force officer and US National Defense Fellow researching security at MIT. His forthcoming thesis examines the national strategic implications of Bitcoin and proof-of-work. Jason shares his thoughts on his website Mutually Assured Preservation
  • In this conversation, Jason Lowery and Preston Pysh discuss property rights, abstract power versus physical power, why rules around property rights break down over time, computer science and programming basics, proof-of-work versus proof-of-stake, how to exploit proof-of-work and proof-of-stake, creative destruction, Jamie Dimon liking everything but proof-of-work, Vitalik Buterin, how the MIT faculty responds to Jason’s research, and Jason’s message to policymakers 
  • Check out these Podcast Notes on Michael Saylor predicting the future of Bitcoin 
  • Host – Preston Pysh (@PrestonPysh

A Background on Property Rights to Better Understand the Differences Between Proof-of-Stake and Proof-of-Work

  • In the animal kingdom, when pack animals have a property to distribute amongst the pack, they feed and breed the most powerful members of the pack first
    • “Power” as in who can project the most physical power in watts, or joules per second 
  • If there’s a dispute over the distribution of the property, like a kill, for example, the conflict is settled through physical power competition between the pack members
  • Pack animals use a proof-of-power protocol to establish a state of legitimate ownership consensus and chain of custody of their property
  • Survivorship bias: everything you observe in nature is what has survived a rigorous selection process
    • Pack animals use the proof-of-power protocol because all the other animal packs that used other techniques didn’t survive
  • Proof-of-power is the protocol that has survived natural selection  
  • As Sapiens evolved, they came up with imaginary alternatives to the proof-of-power protocol and began appointing people with imaginary power 
    • “Rank” was evident, as some individuals like god-kings were buried with gold plates and others individuals were buried with nothing
    • The amount of imaginary power the buried person had in their life is correlated to the amount of gold buried in their tomb, for example
  • God kings determined resource control authority with their imaginary power, and they determined the legitimate chain of custody of property 
  • Bitcoin is a philosophy about determining the basis for establishing resource control authority and reaching a consensus on the legitimate state of ownership and chain of custody of an underlying piece of property 

Abstract Power versus Physical Power 

  • You become less secure when you choose to stop projecting physical power on your attackers 
  • Domestication is humans deliberating removing an animal pack’s inclination to impose physically prohibitive costs, making them docile 
  • Domestication is proof that you risk systemic exploitation if you use a different protocol than the proof-of-power protocol  
  • The essential foundation of modern agrarian society is human’s ability to make animals less physically aggressive, less inclined to impose physical power, and less likely to impose physical costs so humans can take advantage of them 
  • There are dramatic strategic security implications for choosing not to project power 
    • The difference between a boar and a pig is that the pig doesn’t put up a fight 
  • At some point, humans morally condemned the use of projecting physical power to settle disputes over property for two reasons:
    • It’s very energy-intensive to establish a pecking order using physical power
    • Physical injury is often the result of projections of kinetic power
  • When solving disputes within the pack, humans, and animals demonstrate the ability to project physical power up and until the point of causing fatal injury; there is a natural instinct to avoid imposing lethal costs on members of the same species 
  • Humans created an abstract form of power to settle disputes over property, and this abstract form of power was considered better because it does not use energy or cause injury   
  • Agrarian society abandoned physical power hierarchies and adopted abstract power hierarchies which granted people of rank control over the resources, such as kings, judges, etc. 
    • This exchange resulted in major systemic differences because removing the animal’s will to fight makes them systematically exploitable
    • God kings took advantage of this opportunity and exploited their populations to egregious scales
  • Abstract power hierarchies are a trust-based system; you have to trust in your god-king because their constraints over control authority have been removed, and they’ve essentially become unimpeachable 
    • The alpha wolf can only control what he has the physical power to control, but there is no limit to what the god-king can control because his power is abstract, not physical 
  • God kings with abstract power can expand their claim on resource control authority at zero cost, while the wolf must exert large costs to expand its control authority 

Why Rules Around Property Rights Break Down Over Time 

  • There are tradeoffs to swapping out physical power hierarchies for abstract power hierarchies
  • Physical power is a highly inclusive protocol, meaning every single person can have access to physical power, i.e. everyone can choose to fight 
  • Physical power is systemically exogenous, meaning it cannot be systematically exploited 
    • Compared to forms of abstract power, such as rank, which is instantiated by the system itself and therefore can be systematically exploited
  • Physical watts exist outside of abstract power hierarchies 
  • Physical power is decentralized; you can see and validate physical power  
  • If physical power was not energy intensive, and if it had no capacity to cause physical injury (say, if it was in an electric form), then the proof-of-power protocol would be a highly systemically secure protocol, and it would likely not be ideologically condemned 
  • Abstract power is not inclusive; in fact, there is usually one person at the top who has most of the power 
    • Not everyone has access to arbitrary power, so it is not inclusive nor fully representative 
  • It is impossible to see abstract power and impossible to validate if it’s decentralized
  • Benefits of abstract power: highly efficient and not capable of causing injury
    • The benefits of abstract power require trust 
  • The benefits of abstract power tend to break down over time because people must be trusted not to exploit them, not to invade them, not to be unsympathetic to them, and history is filled with breaches of that trust  
  • It is easier to exploit people through positions of higher rank (abstract power) than exploiting them through methods of physical power 
  • Abstract power hierarchies require you to trust that your god-king will not exploit his power, and trust that Ghengis Khan will not come into your neighborhood and take your property
  • From a physical standpoint, you are technically powerless if you rely on abstract power
  • Abstract power hierarchies are very attractive to parasites, sociopaths, and individuals that want a lot of control and authority over resources because all they need is “rank”
  • “It’s like moths to a flame.” – Jason Lowery on parasites being attracted to arbitrary power hierarchies like proof-of-stake  
  • Nepotism is common in agrarian societies; high-ranking officials can easily create abstract reasons as to why the high-ranking positions must remain in the bloodline
  • Everything has a benefit-to-cost ratio to attacking, or being attacked 
  • You need the cost of attacking you to be as high as possible if you want to be systemically secure 
    • There is no way of knowing if your ratio is high enough, so you must ensure that you have the ability and the strive to maximize and manage it 

How Computer Systems & Programs Work 

  • A computer is a general-purpose state machine; it is a machine whose state can be changed
  • State machines are named after their function, not their form 
  • For 2,000 years, state machines were special-purpose state machines; they were designed to compute a specific thing 
  • In the 1830s, Charles Babbage and his friends thought about creating a general-purpose state machine that could perform more than a single compute
    • The general purpose state machine could be programmed to perform various computes 
  • “Programming” is giving the state machine instructions on how to compute various things
  • Programming is like Shakespeare:
    • Romeo and Juliet is a fictional story and does not physically exist
    • Shakespeare takes figments of his imagination (Romeo and Juliet) and writes them down using a symbolic language called English to translate the fiction in his head onto a script 
    • Shakespeare hands the script to the actors and they give a performance 
  • Romeo and Juliet remain an abstract fiction despite the script and performance existing in physical space; the same logic applies to computer programs
  • Computer programmers think of fictional designs in their brains, write them down on scripts and translate them with a symbolic language called machine code, hand them to machines who can read and perform the script according to the instructions they are given 
  • Programs are the symbolic meaning of the state change that is applied to the state machine 
  • Humans found a way to apply symbolic meanings to circuits and have those circuits repeat that symbolic meaning back to them 
  • Everything you see on a computer screen is the symbolic representation of what was once in someone’s brain that a state machine is acting out for you 

An Introduction to Proof-of-Stake vs. Proof-of-Work 

  • Software doesn’t break, it cannot break; the software simply does exactly what it is told 
  • Nothing “breaks” when a software hack occurs, it is just someone taking advantage of the rules of the system 
  • Most software is designed using abstract power hierarchies where ranks are assigned to certain positions, such as admin privileges or admin rights 
    • Admins are higher in rank, have more control authority, can access more information, and can execute more dangerous commands 
  • For the purpose of systems security, technically all software is an abstract power hierarchy where the developer is the one who effectively functions as the god-king 
    • The developer gives himself the most abstract power and therefore has the most control and authority over whatever resources that software manages 
  • Mark Zuckerberg is the god-king of Facebook: he is the highest ranking person who determines the resource control authority over the information displayed on billions of people’s computers  
  • God kings like Mark Zuckerberg are emerging all throughout cyberspace 
  • Today, human society is migrating resource control authority into cyberspace
  • If a god-king has abstract power over machines, and people become increasingly more dependent on those machines, then the god king’s power extends to power over people too 
  • “People today in cyberspace have levels of abstract power that would make the pharaohs blush.”Jason Lowery 

Hal Finney & Adam Back’s Contributions to Developing the First Blockchain 

  • Hacking is systematically exploiting abstract power hierarchies; there was no way to impose physically prohibitive costs on hackers in cyberspace before Adam Back created the hash cost function  
    • Hash functions are solved with brute-force guesswork, which requires massive amounts of electricity to be expended in the physical world 
  • In 1997, Adam Back created hashing to impose a real-world, physically prohibitive cost on people who were spamming or otherwise systemically exploiting the abstract power hierarchies instantiated by software
  • Adam Back’s hashing function forced users to expend real-world energy (in watts) to send an email, thereby imposing a physically-prohibitive cost on them in the non-abstract reality of shared objective reality   
  • Hashing countervailed the abstract power of software and the people who code software because the hashing function wouldn’t allow the software code to be executed without a receipt from the real world proving that energy was expended 
  • Hashing blends the physical world with cyberspace 
  • Hal Finney expanded on Adam Back’s hashing function and made it reusable instead of single-use, and also theorized other applications for hashing beyond countering spam 
  • Making hashing receipts reusable necessitated that they are tracked and recorded in a cyberspace ledger
  • Satoshi decentralized control over that ledger, understanding that a single person or entity with unilateral control over it would just create another god-king who would eventually exploit it 
  • Satoshi Nakamoto designed the network so the people who get to write the ledger are the people who solved Bitcoin’s hash cost function 
    • This imposed a physically-prohibitive cost on people attempting to control the ledger, thereby replicating the proof-of-power protocol that natural selection vetted 
  • Just like there is no theoretical limit to the number of power people can expend to defend their property in the physical world, there is no theoretical limit to the number of watts honest people can summon to impose physically-prohibitive costs on anyone who tries to gain and exploit centralized control over the ledger
  • Satoshi was most worried about malicious actors attacking the Bitcoin protocol: in eight pages, he mentions the word “attack” 25 times
  • Honest actors have an unlimited benefit-to-cost ratio of being attacked because the defense of the 51% attack is rooted in physical power; there is no limit to the number of watts they choose to expend to defend themselves from being exploited  

A Primer on Proof-of-Stake 

  • Proof-of-stake is effectively proof-of-rank
  • Choosing proof-of-stake forfeits your capacity to project physical power to defend yourself in cyberspace and goes back to the pre-Adam Back era of computer science
  • The primary design concept of proof-of-stake existed before proof-of-work came out
  • The difference between proof-of-work and proof-of-stake comes down to two different theories on how to secure your access to your property 
  • Proof-of-work secures your access to your property by preserving your ability to impose severe physically-prohibitive costs on anyone that would try to take it from you, deny your access to it, or exploit your rules
  • Proof-of-stake secures your access to your property by creating an abstract form of power and using that as the basis for defense 

How to Exploit Proof-of-Stake and Proof-of-Work 

  • Proof-of-stake protocols implement a concept called “slashing” where honest actors can impose a cost by “slashing” the stake of validators that might be abusing their control authority over the ledger 
  • Control authority over the ledger is the primary security concern for these protocols
  • PoS validators have control authority over the ledger and are essentially gatekeepers 
  • Pos validators get to choose which transactions are added to the ledger, which also means they get to choose which transactions are not added to the ledger
  • Bitcoin counters denial service attacks by hashing out the malicious actor’s control authority over the ledger, but that cannot be done in a zero-sum proof-of-stake system 
    • Example: Say a single entity controls 60% of all stakes, they can split that stake among millions of validators, and then use those validators to tactfully withhold specific transactions from the blockchain

Creative Destruction & How it Applies to Protocols    

  • There is nothing physically preventing a nation-state from printing tons of money to buy all the stakes to gain control and authority over the ledger 
  • Proof-of-stake has no tie to physical reality 
  • It’s physically impossible to verify that stake isn’t already centralized 
  • As a military adversarial thinker, Jason Lowery identifies three major problems with slashing
    • How do you even attribute an attack if millions of different validators can be controlled by a single entity? 
    • It assumes that people will think that the censored chain is bad 
    • It works both ways, so honest actors can also be slashed
  • People are different and have different ideological beliefs; it’s unlikely that everyone operating on a proof-of-stake network will agree that the censored chain is bad
    • Financial sanctions are often polarizing, which was made evident in the Canadian trucker protests
  • Your oppressors are anonymous in a proof-of-stake system 

Jamie Dimon Likes Everything But Proof-of-Work

  • Currently, Jamie Dimon is the apex predator in his abstract power hierarchy; as the god-king, he will do whatever he can to maintain his abstract power 
  • In the abstract world of software, people often pick something random within the world of software and label it as “the innovation”
    • Jamie Dimon points at blockchain and says that it is the innovation
    • Other people in the crypto-land claim that it is smart contracts, decentralized exchanges, etc. 
  • These people try to get others to pay attention to everything but Bitcoin, which involves physical cost functions and the physical decentralization of control authority over resources
  • Ethereum and the CBDC people do the same thing as Jamie Dimon: they point at some other “innovation” outside of Bitcoin so they can lure you into their abstract power hierarchy  
  • Preston Pysh brings up a16z’s 2022 State of Crypto Report that does not mention Bitcoin once in the entire report 
  • Most crypto projects copy Bitcoin’s software, remove the proof-of-work component of it, and replace it with a protocol that grants them resource control over the ledger 
  • Jamie Dimon is using the same strategy that god-kings have used throughout history:
    • Don’t let people realize the value of physically defending their access to their property against systemic exploitation using real-world physical power
    • Condemn the use of physical power 
    • Get people to forfeit their physical aggression through domestication  
    • Get them to adopt the abstract power hierarchy that the god-king can exploit
  • Jamie Dimon’s status as the god-king is threatened if enough people come to appreciate proof-of-work
  • It’s a red flag anytime someone argues that it’s bad to use physical power to impose severe physical costs on your attackers because it “uses too much energy” 
    • The person arguing this is probably a god-king trying to create an abstract power hierarchy that they will ultimately control  

Vitalik Buterin: Proof-of-Work is Not Tethered to Physical Reality  

  • Vitalik Buterin believes that removing physical constraints from Ethereum’s virtual environment makes the system safer or more secure 
  • According to Jason Lowery, Vitalik does not understand that the physical components of the system is what contributes most to security 
  • A common pitfall of software developers is failing to realize that system security is a complex emergent behavior, and is often the result of physical constraints that cannot be replicated in a virtual environment where nothing physically exists
  • Like Jamie Dimon, Vitalik Buterin is god-king-building his abstract power hierarchy by getting people to forfeit their physical power and the physical constraints that protect them 

How the MIT Faculty Responds to Jason Lowery’s Research  

  • Jason utilizes a grounded theory methodology on Twitter, which basically means conversing with as many people as possible on his research subject 
  • Many people at MIT are obsessed with proof-of-stake
  • Jason deliberately steered away from the professors and business students at MIT, who are all obsessed with Web3 and crypto 
  • He sought out MIT’s experts in software security and software systems security, a person with 40 years of experience in the field, and one who thought Bitcoin was a complete scam
  • Jason convinced her to be his thesis advisor by saying he would use her area of expertise to convince her why Bitcoin is the exception 
  • Jason’s thesis will be published in 2023

Jason Lowery’s Message to Policy Makers

  • When gunpowder was first invented, it was considered a medicine for more than 200 years and was monetized as such 
    • The person that created it called it medicine, so everyone thought that it was medicine
    • However, people eventually realized that black powder was not medicine and that it was a power projection technology 
  • Money is just one of many use cases for proof-of-work 
  • We don’t ask meteorologists about the technical merits of cloud computing; just because proof-of-work’s primary use case has the word “coin” in it doesn’t make the US Treasury Department or the Federal Reserve qualified to talk about the technical merits of proof-of-work
  • People in the United States Treasury Department are the last people qualified to be talking about the national strategic security implications of proof-of-work and Bitcoin
  • From the perspective of someone who spends all his time studying power projection technology, Jason Lowery does not believe institutions like the Treasury Department are qualified to be speaking about the technical merits of Bitcoin or anything that uses proof-of-work 
  • “My recommendation to any policy maker that might be listening to this: the last people you should be listening to are bankers and financiers about power projection technology.”Jason Lowery   
  • Anytime a new power projection technology emerges in history, such as gunpowder, torpedoes, aircraft, or nuclear weapons, it becomes a strategic Schelling point 
  • There are many historical examples of bad things happening when nations don’t realize the importance of the new emerging power projection technology soon enough 
  • If Bitcoin is a power projection technology and a new way for people to defend themselves or particularly their property, the United States must take it extremely serious from a national strategic standpoint 
  • The last thing a nation should do is remove the emerging power projection technology from its land
    • Doing so may result in handing the keys to the kingdom to the adversary that doesn’t remove itself from using the emerging power projection technology 

Books Mentioned

Additional Notes 

  • Humans fight over a scarce resource (land) and project physical power on one another (war) to establish a chain of legitimate custody over the scarce resource, which is decentrally recorded 
  • Stags have evolved horns that are designed to entangle with one another to prevent fatal injury when settling disputes with one another; the same horns can be used to fatally injure other species 
    • Evolution has selected the horns to minimize injury when determining internal pecking order without reducing the animal’s ability to defend itself externally 
  • “Instead of trying to bend the spoon, only try to realize the truth: there is no spoon.” – Neo from the Matrix 
    • Everything in cyberspace is an abstraction
    • Neo realized that software was just an abstraction that could be exploited; nothing in the matrix is real, so there are technically no physical restrictions on the amount of power he could achieve
  • Preston Pysh found Bitcoin in 2015 after realizing that its secure protocol would be an attractive place to store buying power following the eventual implosion of the $300 trillion credit markets  
  • Jason was originally drawn to Bitcoin upon realizing that humans would use watts to impose physically prohibitive costs to defend themselves in cyberspace, just like we do on land, air, sea, and air   
  • Setting the monetary achievement of Bitcoin aside, it is also a massive breakthrough for the field of computer science and cybersecurity 
  • Bitcoin combines computer science, anthropology, political history, military strategy, and money
Bitcoin Fundamentals with Preston Pysh : , , , , , , , , , ,
Notes By Stan Rizzo

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