Author: Hacash Enthusiast
KasLianGuai, a rising PoW project, has performed well recently. In just one year, it has surpassed a hundredfold increase and entered the top 50 in terms of market capitalization. It’s surprising that a PoW coin has surpassed many well-known projects. This raises the question: why is PoW, a seemingly outdated mechanism, so impressive?
There are two common explanations:
Looking at PoW in a bear market
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After Ethereum transitioned to PoS, the remaining computing power needs to find new support
From a macro perspective, these two viewpoints are roughly correct, but upon careful consideration, it’s not that simple.
Looking at PoW in a bear market
“Looking at PoW in a bear market” is a summary of industry consensus. However, this statement actually implies that in bear market conditions, most funds will withdraw from narrative-driven assets, and the remaining funds will converge on assets with objective value assessment criteria, while PoW coins have objective value due to the energy consumption required for mining. However, when a bull market arrives, PoW lacks the innovative spark of ICOs, DeFi, governance, and other narrative-driven projects, allowing other new narrative-driven projects to gain the upper hand.
The development of PoW, from the birth of Bitcoin to the present, has been 14 years. It has become the air and water of the industry, and everyone has become accustomed to PoW. PoW has been around for so long that it no longer impresses people. Only when the industry encounters various problems and new “IXO” projects prove to be unsuccessful, will people begin to pay attention to PoW once again.
Therefore, the phrase “Looking at PoW in a bear market” not only implies the objective value of PoW but also signifies that PoW severely lacks innovation in the crypto industry. Any project with some innovation and good market promotion will rise during a bear market.
The computing power support after Ethereum’s transition to PoS
After Ethereum transitioned to PoS, the original computing power needs new targets. This leads to another consideration: why haven’t other PoW projects, besides KasLianGuai, performed as well? The main reason is the lack of innovation in PoW projects.
The rise of KasLianGuai is not purely due to the PoW mechanism itself, but the combination of PoW and an innovative DAG-like technology called BlockDAG, making it the fastest and highest volume layer 1 in terms of transaction processing within PoW chains. The market no longer buys into the idea of PoW alone; something new must be presented.
If we evaluate solely from the perspective of processing speed and transaction volume of Layer 1, it immediately brings to mind many capital-driven projects such as Solana, Aptos, and Sui, which have all abandoned the “outdated” PoW mechanism. The emergence of KasLianGuai breaks this pattern, although its BlockDAG technology seems to be another form of the “big blocks” approach.
This also validates the previous point: PoW, combined with good innovation, can also succeed in a bear market.
PoW Project Innovation Review
So, innovation in PoW is crucial, but this article discusses the innovation in the narrative direction of PoW projects, rather than the innovation in PoW technical details. The author will discuss the innovation of the technology itself in a new article. Let’s first review the innovation journey of PoW projects. In the following innovation stages, we mainly differentiate them based on whether the PoW projects have entered the top 100 in terms of market capitalization.
Bitcoin was the first successful project with a PoW mechanism. After Bitcoin achieved success in the first stage, at that time, many followers gained market attention only through forks and simple modifications of some parameters, such as Litecoin, Dogecoin, Bitcoin Cash, etc. Some even simply reconstructed the code language of Bitcoin, such as New Economy Movement, which is a rewritten version of Bitcoin in Java, aiming to create an enterprise-level Bitcoin.
So, in the first stage, the main purpose of innovation in PoW projects was to surpass Bitcoin and fill the gaps in the segmented market, even though the targeted market may not seem valuable now.
The second innovation stage is PoW combined with PoS. Representative projects include Peercoin and Dash. The purpose was to govern the development of their projects through PoS. After Bitcoin’s success, under the amplified influence of the value of PoW, PoS development was further boosted. It has become commonplace to believe that PoS will play an equally important role as PoW or even completely surpass PoW. This influence still exists today, and a typical representative is the development of DAO, which believes that various PoS mechanisms can facilitate efficient decentralized cooperation.
The third innovation is represented by PoW privacy coins like Monero, followed by new privacy coins like Zcash, Grin, and IronFish. However, it can be seen that most of the later privacy coins have failed to surpass Monero. The main reason is that privacy is ultimately to meet the demand, and privacy technology is not the goal but only a means. The effectiveness of privacy has not changed much, no matter how new the technology is. In addition, privacy has network effects and requires a large amount of money for mixing. Monero has a precise user profile and mainly serves hackers, while ordinary people do not have a strong demand for privacy compared to them.
Another point to note is that new privacy projects tend to adopt PoW, and the main reason for this is that privacy requires a truly decentralized mechanism, while various PoS mechanisms to some extent will bring centralization issues. If the decentralization of the chain is not guaranteed, privacy cannot be achieved.
The fourth innovation is PoW combined with smart contracts. Ethereum is the representative in this direction. Although it has transitioned to PoS, it still uses PoW for public chains that have smart contracts, such as Nervos and Conflux. The main reason for adopting this is that PoW mining is currently the fairest token distribution system and has been proven to be a stable consensus mechanism in the long term.
The fifth innovation is the combination of PoW and DAG technology. Strictly speaking, DAG technology is not a blockchain. Its main purpose is to improve the TPS of PoW chains and solve the slow transfer problem of Bitcoin at Layer 1. However, DAG technology often requires trade-offs between decentralization and preventing double spending. Currently, representatives of DAG technology include Kadena and KasLianGuai. KasLianGuai mentioned at the beginning of the article is an innovation based on DAG technology.
From these five innovations, it can be seen that the essence of their innovation lies in solving three aspects of improving the blockchain: transaction speed, privacy, and transaction diversity.
New Opportunities for PoW Projects
These innovative PoW coins are represented by projects that have entered the top 100 in global market value. So besides these five innovations, what other undiscovered PoW innovation projects are there? Currently, the author has identified four main ones.
The first one is the combination of PoW and NFT. Representative projects include HACD.art, PoW NFT, and Mineable Punk. From these projects, it can be analyzed that PoW can make the distribution of NFTs more fair, instead of being controlled by the team, which is an advantage shared by all PoW NFT projects.
In addition, the number of blue-chip NFTs is limited. Adopting the PoW mechanism is more reasonable to address the issue of new blue-chip NFTs, which is the characteristic of MineablePunk. PoW can also improve the long-term sustainability of NFTs. Since PoW can halt production when demand decreases and produce more when demand increases, HACD.art has gradually increased the difficulty of PoW output, similar to Bitcoin. The mining cycle will be longer, and the final hash rate will be larger.
The second one is the combination of PoW and stablecoins. Algorithmic stablecoins have failed one after another because they cannot achieve decentralization, large-scale, and stability at the same time. However, PoW solves the problems of decentralization and large-scale (as Bitcoin has solved). So how to maintain purchasing power stability? Currently, there are two directions. One is, for example, Hacash, which uses three PoW coins to adjust stability in a decentralized manner but cannot achieve stability pegged to fiat currency, only relative stability of purchasing power. The other is, for example, Meter, which uses PoS governance to regulate stability. However, PoS governance coins are issued by the authorities, so PoS-based governance is essentially centralized.
The third one is the combination of PoW and AI. The rise of AIGC has shown the trend of AI in the future. Running large models requires a huge demand for computing power, so the opportunities that arise can only be monopolized by big companies. Therefore, the combination of PoW and AI can break this situation. By using PoW for mining and AI model computation, a decentralized network of large models can be formed. Projects in this direction include Bittensor and Tromero. However, finding uses for PoW and achieving technical innovations in this area is extremely difficult. Because the effective operation of blockchain requires a smooth computing power curve, while solving practical problems requires discrete and discontinuous algorithm difficulty. Moreover, the validity of evaluation results depends on human decision-making, which ultimately relies on centralized solutions. For example, Bittensor uses PoW token staking for decision-making.
The fourth is the combination of PoW and Bitcoin. The innovation of this combination is the Bitcoin one-way transfer proposed by Hacash. Its purpose is to use one of the PoW coins as compensation for the risk after the transfer of Bitcoin, and its value and driving force are similar to the regulation of ancient gold, silver, and copper in the Hacash three-coin system. If the one-way transfer of Bitcoin is successful, it is likely that new PoW projects such as Litecoin one-way transfer will appear, which may be the next explosion point in the narrative of PoW projects.
Why is the PoW mechanism considered outdated?
We can see that the unique value and innovation opportunities of PoW are still continuing. But why does the encryption industry think that PoW is outdated?
The main reason is that PoW lacks the explosive point obtained by Ethereum (mainly ICO), which has led to the development of the industry being led by Ethereum. At the same time, in order to prove the correctness of PoS, it intentionally guides everyone to compare PoW and PoS on a single ledger consensus level. However, if we look at it from the perspective of the mechanism, we can see that the value of the PoS mechanism mainly relies on the innovation brought by Ethereum’s smart contracts, and has little to do with PoS itself. The failure of the previous PoS chain Peercoin is enough to prove this.
In addition to the lack of explosive points in PoW and the attack of the later PoS mechanism on the single-dimensional ledger consensus level, there are also the following 5 reasons:
Pursuit of new narratives. The PoW mechanism emerged with Bitcoin at the beginning of the entire industry, and most newcomers to the encryption industry are attracted by the current trends and do not pay attention to the old.
Energy consumption. PoW is misunderstood as unnecessary waste of energy, leading to resistance from some people.
Innovation difficulties. Innovations based on PoW are more fundamental and difficult, and are strongly related to economics or economic models. There are not many teams capable of making differentiated and meaningful improvements.
PoW is not conducive to the project side. The essence of the mechanism is closely related to the fairness of token distribution, which is beneficial to the community but becomes an obstacle for the project side to become profit-oriented. This has resulted in few teams motivated to do PoW-related projects.
PoW is not conducive to capital. With the development of the industry for more than a decade, the participation of venture capital has greatly increased and even become the dominant force in most projects. The token cost of the PoW mechanism is not conducive to rapid capital exit.
The above 5 points are the main reasons why the PoW mechanism is considered outdated. However, Bitcoin, based on PoW, has always remained the top cryptocurrency in terms of market value, and there are constantly emerging PoW projects that have performed well and proven to everyone the significance of consuming energy to maintain the operation of the blockchain and that the success of PoW is not limited to Bitcoin alone. The opportunity for PoW still exists, what is needed is for more people to re-examine PoW, pay attention to PoW, and innovate based on PoW.