PoW seems outdated, but innovation has not stopped
PoW projects combined with good innovations can also successfully rise in a bear market.Written by: Hacash Enthusiast, OdailyNews
The newly launched PoW project Kaspa has recently performed exceptionally well, achieving over a hundredfold increase in just one year, and its market capitalization has entered the top 50. It is surprising that a PoW coin has surpassed many star projects, raising the question of why this seemingly outdated mechanism can shine so brightly.
There are two common explanations:
Bear market favors PoW
After Ethereum's transition to PoS, the remaining computing power needs new carriers
From a macro perspective, these two viewpoints are generally correct, but upon closer examination, it is not that simple.
Bear Market Favors PoW
"Bear market favors PoW" is a summary of industry consensus. However, this statement implies that under bear market conditions, major funds will withdraw from assets driven solely by narratives, and the remaining funds will concentrate on assets with objective value assessment standards, while the output of PoW coins has objective value support due to the need for electricity consumption. However, when a bull market arrives, due to the lack of innovative triggers like ICOs, DeFi, and governance in PoW, other new narrative-driven projects will gain the upper hand.
The development of PoW has spanned 14 years since the birth of Bitcoin, becoming the air and water of the industry. People have become accustomed to PoW, and it has not provided any eye-catching innovations for a long time. Only when various problems arise in the industry and new "IXO" projects are proven unfeasible will people once again focus on PoW.
Thus, the phrase "bear market favors PoW" not only signifies the objective value of PoW but also indicates a serious lack of innovation in PoW within the crypto industry. Any project with some innovation, combined with effective market promotion, can rise in a bear market.
Computing Power Carriers After Ethereum's PoS Transition
With Ethereum's transition to PoS, the original computing power needs new targets. This raises another question: why have many old PoW projects not performed as well as Kaspa? The main reason can be traced back to the innovation of PoW projects.
The rise of Kaspa is not purely due to the PoW mechanism itself, but rather the combination of PoW with an innovative DAG-like technology called BlockDAG, making it the fastest layer 1 in processing transactions and handling the highest transaction volume among PoW chains. The market will no longer buy into projects just because they are labeled as PoW; something new must be presented.
If we evaluate purely from the perspective of the fastest transaction processing and highest transaction volume layer 1, we can immediately think of many capital-driven projects, such as Solana, Aptos, and Sui, all of which have abandoned the "old" PoW mechanism. The emergence of Kaspa breaks this trend, even though its BlockDAG technology seems to be another form of the "big block route."
This further validates the previous point: PoW combined with good innovation can also rise successfully in a bear market.
A Review of PoW Project Innovations
Therefore, innovation in PoW is crucial, but this article discusses the innovation in the narrative direction of PoW projects, rather than the technical details of PoW. The innovation of the technology itself will be discussed in a future article. Let’s review the innovative journey of PoW projects, distinguishing the following innovation stages based on whether PoW projects have entered the top 100 by market capitalization.
Bitcoin was the first successful project using the PoW mechanism. After Bitcoin achieved its first stage of success, many later entrants gained market attention merely by forking or making simple parameter modifications, such as Litecoin, Dogecoin, and Bitcoin Cash. Some even just reconstructed Bitcoin's code in a different programming language, like New Economy Movement, which is a rewritten version of Bitcoin in Java aimed at creating an enterprise-level Bitcoin.
Thus, the primary goal of the first stage of PoW innovation projects was to surpass Bitcoin and fill the gaps in niche markets, even if the targeted markets seem to have little value today.
The second stage of innovation is PoW combined with PoS. Representative projects include Peercoin and Dash. The aim was to govern project development through PoS. After Bitcoin's success, the amplified value of PoW further propelled the development of PoS, leading many to believe that PoS would play an equally important role as PoW or even completely surpass it. This influence still exists today, with a typical example being the development of DAOs, which are believed to enable efficient decentralized collaboration through various PoS mechanisms.
The third innovation is represented by PoW privacy coins like Monero, followed by newer privacy coins such as Zcash, Grin, and IronFish. However, it can be observed that later entrants have mostly failed to surpass Monero. The main reason is that privacy ultimately aims to meet demand; privacy technology is not the goal but merely a means. The effectiveness of privacy has not changed significantly, and newer technologies are of little use. Additionally, privacy requires network effects, necessitating substantial funds for mixing. Monero's user base is precise, primarily serving hackers, while ordinary users do not have a strong demand for privacy.
Another point to note is that new privacy projects tend to adopt PoW, primarily because privacy requires a truly decentralized mechanism, and various PoS mechanisms can lead to centralization issues to some extent. Without ensuring the decentralization of the chain, privacy becomes moot.
The fourth innovation is PoW combined with smart contracts. Ethereum is a representative of this direction; although it has transitioned to PoS, there are still public chains that insist on using PoW for smart contracts, such as Nervos and Conflux. The main reason for this adoption is that PoW mining is currently the fairest token distribution system and has proven to be a robust consensus mechanism over time.
The fifth innovation is PoW combined with DAG technology. Strictly speaking, DAG technology is not a blockchain; its primary purpose is to increase the TPS of PoW chains and solve Bitcoin's slow transfer issues on Layer 1. However, DAG technology often requires trade-offs between decentralization and preventing double-spending. Currently, representatives include Kadena and Kaspa, with Kaspa being an innovative application of DAG technology.
From these five innovations, we can see that their essence lies in addressing three aspects of blockchain improvement: transaction speed, privacy, and diversity of transaction forms.
New Opportunities for PoW Projects
These innovations in PoW coins have led to representative projects entering the global top 100 by market capitalization. So aside from these five innovations, what other undiscovered PoW innovative projects exist? Currently, I have identified four main ones.
First, the combination of PoW and NFTs. Representative projects include HACD.art, PoW NFT, and Mineable Punk. From these projects, we can analyze the role of PoW in NFTs: PoW can make the distribution of NFTs fairer, rather than being controlled by the team, which is a common advantage of all PoW NFT projects.
Additionally, the number of blue-chip NFTs is limited. How to increase the number of new blue-chip NFTs makes the PoW mechanism more reasonable, which is a characteristic of Mineable Punk; PoW can also enhance the long-term sustainability of NFTs, as PoW allows NFTs to be discontinued when demand decreases and produced when demand increases. For example, HACD.art has made gradual adjustments to the difficulty of PoW output, similar to Bitcoin, where the mining cycle will be longer, ultimately leading to a larger scale of computing power.
Second, the combination of PoW and stablecoins. Algorithmic stablecoins have repeatedly failed due to their inability to achieve large-scale decentralization and stability simultaneously. PoW effectively addresses the issues of decentralization and scalability (as Bitcoin has solved). The challenge now is to maintain purchasing power stability. Currently, there are two directions: one is exemplified by Hacash, which uses three PoW coins to adjust stability in a decentralized manner, but cannot achieve stability linked to fiat currencies, only relative stability in purchasing power. The other is represented by Meter, which uses PoS governance to adjust stability. However, PoS governance tokens are all officially issued, making PoS-based management essentially centralized.
Third, the combination of PoW and AI. The rise of AIGC has revealed the future trends of AI, where the operation of large models requires massive computational power, leading to opportunities that can only be monopolized by large companies. Therefore, the combination of PoW and AI can break this situation. By mining through PoW and computing AI models, a decentralized large model network can be formed. Projects in this direction include Bittensor and Tromero. However, finding practical applications for PoW is technically challenging. This is because the effective operation of blockchain requires a smooth computing power curve, while the algorithms that solve practical problems are discrete and jumpy, and the validity of the evaluation results relies on human decisions, ultimately leading back to centralized solutions, such as Bittensor, which uses PoW token staking for decision-making.
Fourth, the combination of PoW and Bitcoin. This innovative combination is proposed by Hacash, which involves the one-way transfer of Bitcoin. The aim is to use one of the PoW coins for risk compensation after the one-way transfer of Bitcoin, with its value and driving force akin to the ancient regulation of gold, silver, and copper in Hacash's three-coin system. If the one-way transfer of Bitcoin is successful, it is likely that new PoW projects like Litecoin's one-way transfer will emerge, which may become the next explosive point in the narrative of PoW projects.
Why is the PoW Mechanism Considered Outdated?
We can see that the unique value and innovative opportunities of PoW continue to exist. But why does the crypto industry consider PoW outdated?
The main reason is that PoW lacks the explosive points gained by Ethereum (primarily the ICO), allowing Ethereum to lead industry development, while deliberately guiding everyone to compare PoW and PoS on a single ledger consensus level to prove the correctness of PoS. However, if we look at it purely from the perspective of mechanisms, the value of the PoS mechanism mainly relies on the innovations brought by Ethereum's smart contracts, rather than being closely related to PoS itself. The failure of the former PoS chain Peercoin is sufficient proof of this.
In addition to PoW lacking explosive points and being subjected to the single-dimensional attacks of the later PoS mechanism on ledger consensus, there are five other influencing factors:
Pursuit of new narratives. The PoW mechanism appeared at the beginning of the entire industry with Bitcoin, and newcomers to the crypto industry are mostly attracted by the current trendy hotspots, focusing on the new rather than the old.
Energy consumption. PoW consumes energy, which is misunderstood as unnecessary waste, leading to resistance from certain groups.
Difficulty in innovation. Innovations based on PoW are more foundational and challenging, and are strongly correlated with economics or economic models, with few teams capable of making differentiated and meaningful improvements.
PoW is unfavorable to project parties. The essence of the mechanism is closely linked to the fairness of token distribution, which benefits the community but becomes an obstacle for project parties to dominate interests. This results in very few teams being motivated to undertake PoW-related projects.
PoW is unfavorable to capital. After more than a decade of industry development, the participation of venture capital has significantly increased, even becoming the dominant force in most projects. The token costs of the PoW mechanism are not conducive to the rapid exit of capital.
These five points are the main reasons why the PoW mechanism is considered outdated. However, Bitcoin, based on PoW, continues to hold the top market capitalization position, and new PoW projects continue to emerge, demonstrating the significance of energy consumption in maintaining blockchain operations, as well as proving that the success of PoW is not limited to Bitcoin. Opportunities for PoW still exist; what is needed is for more people to reassess PoW, pay attention to PoW, and innovate based on PoW.
