POSA is an advocacy organization focused on educating lawmakers on how proof-of-stake validation of new blocks can improve problems with cryptocurrency’s current proof-of-work mining, notably its vast carbon footprint, which is comparable to small countries. The group is also lobbying for tax changes.
Among other things, POSA has been working to get clarity with the Securities and Exchange Commission on how securities laws will view PoS validation relationships. It has also created a white paper looking at the proper tax treatment of staking rewards.
A number of blockchains are already using proof of stake—which goes by the unfortunate moniker PoS—including Tezos, Cosmos, and Algorand. A number of others are coming, with the 800-pound gorillas being Ethereum 2.0 and Facebook’s Libra stablecoin.
Both Bison Trails and Coinbase are founding members of the Libra Association.
“Proof of Stake is an increasingly important innovation that the crypto space as a whole is rapidly trending toward,” said Sam Mcingvale, CEO of Coinbase Custody, in a statement. “POSA is playing a critical role by engaging with lawmakers and regulators to educate them on emerging PoS technology.”
Staking it all
Proof-of-stake validation is a way around the increasingly costly and centralized mathematics-based proof-of-work mining protocol developed in the 2009 Bitcoin whitepaper. In a PoS blockchain, validators put up a “stake” of cryptocurrency, and a randomly selected validator is chosen to create the new block. The more coins staked, the more likely a validator is to be chosen.
This solves two problems created by the PoW mining arms race that developed as the price of bitcoin rose. With expensive specialized computer chips taking country-sized gulps of polluting electricity the number of miners are reduced, which can leave cryptocurrencies—particularly the smaller alt-coins—susceptible to 51% attacks.
That is why proof of stake will become the dominant blockchain validation protocol over the next three to five years, according to Joe Lallouz, CEO of Bison Trails.
His infrastructure company, which provides secure, highly available, and geographically distributed nodes for PoS blockchains, supports eight live projects and two dozen more that are either testing or in development. In November, Lallouz and co-founder Aaron Henshaw raised $25.5 million in a Series A funding round.
“I would say it’s still very much in the early innings for the ecosystem to adopt these technologies,” Lallouz told Modern Consensus. “Only a handful have even gone live.”
The end of 2019 and early 2020 “showed a lot of progress towards the next 20 protocols that are going to launch as well,” he said. “It’s pretty interesting to see this transition to this next generation and next wave of blockchain technology happen in the ecosystem, not just with new protocols that are launching, but with Ethereum moving to a proof of stake-based protocol as well.”
That transition by of the second-largest cryptocurrency by market cap to Ethereum 2.0 will play a big part in staking’s development, Lallouz predicted.
“A general market cap shift will slowly emerge as these networks gain more and more traction,” he said. “Three to five years does not sound like a crazy time frame.”
If the Ethereum Foundation meets its goals and “starts making the transition this year—being that Ethereum is a pretty large portion of the crypto market cap—I could start to see that number chip away pretty quickly,” said Lallouz. “As these networks gain more and more traction, [proof of stake] will quickly become dominant.”