Hashing outside PoW

Aside from proof of work, PoS and DPoS also make use of hashes, and largely for the same purpose. Plenty of discussion has been dedicated to whether PoS will replace PoW and prevent us from running thousands of computers doing megawatts' worth of tedious hashing with enormous carbon footprints.

PoW systems seem to persist in spite of the power consumption and environmental impact of reasonably difficult hashing operations. Arguably, the reason for this is the very simple economics: miners have an incentive to validate transactions by computing hashes because they receive a share of new tokens minted into the system. More complex tokenomics schemes for proof of stake or distributed proof of stake often fail the smell test.

Take, for example, the idea of a stock photo blockchain project—we’ll call it Cannistercoin. Users contribute photos to a stock photo website, and in return they receive tokens. The token is also used to buy stock photos from the website, and this token is traded on exchanges.

This would seem to work, and it’s a complete market—Cannistercoin has identified buyers and sellers and has a mechanism to match them—but it is perhaps not a functional market. The barriers to entry here are significant: a buyer could use any ordinary stock photo site and use their credit card or bank account. In this model, the buyer needs to sign up for an exchange and send cryptocurrency in exchange for the token.

To be truly decentralized, a big piece is missing from this economic model—that is, this system of incentives. What provides an incentive for witnesses or validators to run their machines and validate transactions?

You can give them some share of the tokens, but why wouldn’t many of them sell their tokens immediately in order to recoup the costs of running their machines? It can be reasonably expected that that constant selling pressure holds down the price of tokens in many of these appcoin cryptocurrencies, and this is a shame. Proof of stake systems are often more elegant with regard to processing power (at the expense of less elegant economic models).

Proof of stake (or another mechanism) may well still take over the world, but, one way or the other, you can safely expect the crypto world to do plenty of hashing.