PoW may seem outdated, but innovation has not stopped

Kaspa, a new PoW project, has performed well recently. In just one year, it has surpassed a hundred-fold increase, and its market value has entered the top 50. A PoW coin has surpassed many star projects. This makes people wonder, why is PoW, a seemingly outdated mechanism, so eye-catching?

There are two common explanations:

• Bear Market Looks at PoW

• After Ethereum transfers PoS, the remaining computing power needs to find new bearers

These two views are roughly correct from a macro perspective, but if you think about it carefully, you will find that it is not that simple.

Bear Market Looks at PoW

"Look at PoW in a bear market" is a summary of the industry consensus. But what this sentence actually means is that in a bear market, the main funds will withdraw from targets that rely solely on narratives, and the remaining funds will gather on targets with objective value assessment standards. The output of PoW coins has objective value support because it consumes electricity . But when the bull market comes, because PoW lacks innovations such as ICO, DeFi, and governance, other new narrative-driven projects will prevail.

PoW has been developed for 14 years since the birth of Bitcoin. It has become the air and water of the industry. Everyone is accustomed to PoW, and PoW has not made everyone's eyes light up for too long. Only when various problems arise in the industry and various new "IXO" projects are proven to be unworkable, people will pay attention to PoW again.

Therefore, the saying "Look at PoW in a bear market" not only means that PoW has objective value, but also means that PoW is seriously lacking in innovation in the crypto industry. As long as there are some innovative projects with good market promotion, they will rise in a bear market.

Ethereum PoS hashrate

Ethereum has shifted to PoS, and the original computing power needs a new target. This inevitably leads to another question: Kaspa is not the only new PoW coin, but there are also many old PoW projects. Why can't they perform as well as Kaspa? The main reason is to return to the innovation of PoW projects.

The rise of Kaspa is not purely due to the PoW mechanism itself, but the combination of PoW and an innovative DAG-like technology BlockDAG, which has become the layer 1 with the fastest transaction processing speed and the largest transaction volume in the PoW chain. The market will no longer buy it just because of the word PoW, and something new must be brought out.

If we evaluate it purely from the perspective of Layer 1, which processes transactions the fastest and with the largest volume, we can immediately think of many capital-driven projects, such as Solana, Aptos and Sui, which have all abandoned the "old" PoW mechanism. The emergence of Kaspa breaks this point, although its BlockDAG technology seems to be another form of "big block route".

This also proves the previous point: PoW plus good innovation can also successfully rise in a bear market.

PoW Project Innovation Review

Therefore, the innovation of PoW is crucial, but this article discusses the innovation of the narrative direction of the PoW project, rather than the innovation of the technical details of PoW. The innovation of the technology itself will be discussed in a new article. Let us first review the innovation journey of the PoW project. In the following innovation stages, we mainly distinguish whether there is a PoW project in the top 100 in market value.

Bitcoin is the first successful PoW project. After Bitcoin achieved success in the first phase, many latecomers gained market attention by simply forking and modifying some parameters , such as Litecoin, Dogecoin, Bitcoin Cash, etc. Some even just refactored the code language of Bitcoin. For example, NEM is a rewritten version of Bitcoin Java language, with the goal of being an enterprise-level Bitcoin.

Therefore, the main purpose of the first phase of innovative PoW projects is to surpass Bitcoin and fill gaps in market segments , even if the targeted market does not seem to have much value at present.

The second stage of innovation is PoW combined with PoS. Representative projects include Peercoin and Dash. The purpose is to use PoS to govern the development of their projects. After the success of Bitcoin, the value of PoW was magnified, which further promoted the development of PoS . People usually think that PoS will play the same important role as PoW or even completely surpass PoW. Even today, this influence still exists. The typical representative is the development of DAO, which believes that efficient decentralized cooperation can be carried out through various PoS mechanisms.

The third innovation is the PoW privacy coin represented by Monero. Later, new privacy coins such as Zcash, Grincoin and IronFish also appeared, but it can be seen that none of the latecomers have been able to surpass Monero. The main reason is that privacy is ultimately to meet needs, and privacy technology is not a goal but a means. The effect of privacy has not changed much, and it is useless no matter how new the technology is . In addition , privacy has a network effect and requires a lot of money for mixing . Monero's user profile is accurate and mainly serves hackers. Ordinary people do not have a strong demand for privacy.

Another point is that new privacy projects tend to adopt PoW. The important reason is that privacy requires a truly decentralized mechanism, and all kinds of PoS will bring about centralization problems to some extent . If the degree of decentralization of the chain is not guaranteed, privacy is out of the question.

The fourth innovation is the combination of PoW and smart contracts . Ethereum is a representative of this direction. Although it has turned to PoS, there are still public chains with smart contracts that insist on using PoW, such as Nervos and Conflux. The main reason for adopting it is that PoW mining is currently the most fair token distribution system and a consensus mechanism that has been proven to be robust over a long period of time.

The fifth innovation is the combination of PoW and DAG technology . Strictly speaking, DAG technology is not a blockchain. Its main purpose is to solve the problem of slow Bitcoin transfers on Layer 1 by improving the TPS of the PoW chain. However, DAG technology usually requires a trade-off between decentralization and preventing double spending. The current representatives are Kadena and Kaspa. Kaspa at the beginning of the article is an innovation in DAG technology.

From these five innovations, we can see that the essence of the innovation is to solve three aspects of improving blockchain: transaction speed, privacy, and diversity of transaction forms .

New opportunities for PoW projects

The innovations of these PoW coins all have representative projects that have entered the top 100 in the global market value. So in addition to these five innovations, what other PoW innovation projects have not yet been discovered? At present, the author has found that there are mainly four.

The first one is the combination of PoW and NFT . Representative projects include HACD.art, PoW NFT, and Mineable Punk. From these projects, we can analyze the role of PoW in NFT. PoW can make the distribution of NFT more fair , rather than being controlled by the team. This is an advantage that all PoW NFT projects have.

In addition, the number of blue-chip NFTs is limited. How to solve the problem of the number of new blue-chip NFTs ? It is more reasonable to adopt the PoW mechanism, which is the feature of MineablePunk. PoW can also improve the long-term sustainability of NFTs. Since PoW can stop production of NFTs when demand decreases, and produce them when demand increases, HACD.art has made a gradual increase in the difficulty of PoW output. Similar to Bitcoin, its mining cycle will be longer and the final computing power scale will be larger.

Second, the combination of PoW and stablecoins . Algorithmic stablecoins have failed one after another because they cannot achieve large-scale, decentralization and stability at the same time. PoW has solved the problems of decentralization and large-scale very well (Bitcoin has solved it) , so how to maintain its purchasing power stability? There are currently two directions. One is that, for example, Hacash uses three PoW coins to adjust stability in a decentralized manner, but it cannot achieve stability linked to legal currency, and can only achieve relative stability in purchasing power. The other is that, for example, Meter uses PoS governance to adjust stability. However, POS governance coins are all officially issued, so the management based on PoS is actually centralized.

The third is the combination of PoW and AI . The rise of AIGC has shown us the future trend of AI. The operation of large models requires a huge amount of computing power, so the opportunities generated can only be monopolized by large companies. Then the combination of PoW and AI can break this situation. Through PoW mining and AI model calculation, a decentralized large model network is formed. Projects in this direction include Bittensor and Tromero. However, it is very difficult to find a use for PoW and innovate at the technical level. Because the effective operation of the blockchain requires a smooth computing power curve, and the difficulty of the algorithm to solve practical problems is discrete and jumpy. Moreover, the effectiveness of the evaluation results depends on manual decision-making, and it is bound to rely on centralized solutions in the end . For example, Bittensor uses PoW token staking to make decisions.

The fourth is the combination of PoW and Bitcoin . The innovation of this combination is the one-way transfer of Bitcoin proposed by Hacash. Its purpose is to use one of the PoW coins to compensate for the risk of Bitcoin transfer after the one-way transfer of Bitcoin. Its value and driving force lies in the Hacash three-coin system, which is similar to the regulation of gold, silver and copper in ancient times . If the one-way transfer of Bitcoin is successful, it is very likely that new PoW projects such as the one-way transfer of Litecoin will appear, which may be the detonation point of the next round of PoW project narrative.

Why is PoW considered outdated?

We can see that the unique value of PoW and the opportunities for innovation continue. But why does the crypto industry think PoW is outdated?

The main reason is that PoW lacks the detonation point that Ethereum has (mainly ICO), which allows Ethereum to lead the industry development. At the same time, in order to prove the correctness of PoS, people are deliberately led to compare PoW and PoS at a single ledger consensus level . However, if we only look at the mechanism, we can see that the value of the PoS mechanism mainly relies on the innovation brought by Ethereum smart contracts, and has little to do with PoS itself. Because the failure of the former PoS chain Peercoin is enough to prove it.

In addition to the lack of a trigger point for PoW and the subsequent single-dimensional attack on the ledger consensus level by the PoS mechanism, there are also the following five reasons:

1. Pursuing new narratives . The PoW mechanism appeared at the beginning of the entire industry along with Bitcoin, and newcomers to the crypto industry are mostly attracted by the current trendy hot spots and look at the new instead of the old.

2. Energy consumption . PoW consumes energy, which is misunderstood as unnecessary waste, leading to resistance from some people.

3. Innovation is difficult . Innovation based on PoW is more basic and difficult, and is strongly related to economics or economic models. Not many teams are capable of making differentiated and meaningful improvements.

4. PoW is not good for the project . The essence of the mechanism is closely linked to the fairness of token distribution, which is good for the community, but it has become an obstacle for the project to become profit-driven. As a result, few teams are motivated to do PoW-related projects.

5. PoW is not conducive to capital . After more than a decade of industry development, the participation of venture capital has been greatly improved, and even has become the dominant force in most projects. The token cost of the PoW mechanism is not conducive to the rapid exit of capital.

The above five points are the main reasons why the PoW mechanism is considered outdated. However, Bitcoin based on PoW has always been the largest market value, and new PoW projects have emerged and performed well, proving the significance of consuming energy to maintain the operation of the blockchain, and that the success of PoW is not only Bitcoin. PoW still has opportunities, and what is needed is more people to re-examine PoW, pay attention to PoW, and innovate based on PoW.