Proof-of-work has gotten a bad rap in recent years as mining companies have grown along with the environmental ramifications. As CEO of a blockchain studio, I have struggled with the environmental impact of miners.
I am personally responsible for the creation of many blocks across many chains. Whether we are minting NFTs, creating smart contracts, or developing a dapp, Studio has done a lot of work in the field of blockchain.
But we also know firsthand that mining creates a super secure environment for transactions; after all, security is the bottom line of blockchain transactions. So, I wanted to find out for myself: is mining going anywhere? Does Ethereum 2.0 mark a change in a new direction?
This is what I discovered.
To what extent does Proof of Work have a real impact on the environment?
The headlines might not be lying this time. As we move toward a common goal to save the planet, reduce pollution, and go green, Proof of Work falls into the polluting camp. In this case, the numbers speak for themselves. Reports show staggering numbers, with energy consumption exceeding that of entire states. And not the little ones.
Proof-of-work is used by big Bitcoin, runner-up, Ethereum, Bitcoin Cash, Litecoin, etc. If we know that the largest transaction volume comes from Bitcoin and Ether mining, you can only imagine the environmental impact coming from the immense computing power required. Actually, you don’t have to imagine it. Here are the numbers.
Studies show that Bitcoin mining alone consumes seven times Google’s total electricity usage. Let’s look at it from another angle. Bitcoin uses 122.87 Terawatt-hours per year; that is more than the Netherlands, Argentina and the United Arab Emirates. But they are not combined, each. Ethereum ranks second by consuming 99.6 Terawatt-hours, more than Belgium, Philippines.
When we translate this into carbon dioxide emissions, BTC leads with 96 million tons, while ETH mining emits 47 million tons. Reports show that the crypto market contains 15,000 cryptocurrencies and 400 exchanges. That is the other fact that we must take into account. If we know that the market is constantly growing, the amount of energy needed will only increase over time, while the mining efficiency will decrease.
One of the main pollutants of our planet is global CO2 emissions. If we know this to be the case, why add to the already staggering pollution numbers with a mechanism that increases emissions? If our goal is to reduce pollutants and if there is a safer alternative, why not change? Ethereum is already making an effort with Eth2.0. But will others do the same?
Is proof of stake a good alternative?
Speaking of alternatives, Proof of Stake comes to the rescue. However, Proof of Work and Proof of Stake are similar. They both represent mechanisms used in the distributed network through which participants can agree on which block of transactions is added to a specific blockchain. The difference? The process of reaching that same end point.
PoW demands large amounts of computing resources and energy, which generate new validated blocks. Proof of Stake revolves around participation. Staking is a bit like voting, in that participants, also known as validators, stake a certain amount of cryptocurrency behind a block they wish to add to the blockchain. So compromised coins are locked while transactions are verified, but can be canceled if you want to trade them.
PoS requires cryptocurrency holders to “vote” for the approval of legitimate transactions. But what about these validators? Well, the reward for voting on legitimate transactions is receiving newly created cryptocurrencies over time. So the “participants” get rewards and planet Earth gets less pollution.
The main advantage is that PoS avoids the need to invest additional sums of money in powerful computing equipment that consumes large amounts of electricity. This is why PoS was created in the first place, as a response to the ever-increasing energy consuming costs coming from PoW protocols.
Another advantage is the promise of higher scalability and performance than PoW. Transactions get faster approval without complex equations in the picture. PoS consumes less power and has higher speed and capacity. But is there a downside to the protocol?
PoS leans towards centralization as greater power is given to those who own larger amounts of cryptocurrencies. They can overly influence transaction verifications, thereby altering the very nature of the blockchain: decentralization, creating whales that control larger supplies of various cryptocurrencies. With no limitations set for a single validator, concentration of wealth could be a potential problem.
Security is another issue that can be a difficult hurdle for the mechanism to overcome. Theft and hacking are the main dangers of proof-of-stake, as there is a 51 percent higher chance of an attack with smaller altcoins. This mechanism can also lead cryptocurrency users to hoard tokens instead of using them to gain their transaction validation powers.
Does Proof of Stake really provide enough network security to be taken seriously?
I am personally interested in the security of transactions on the blockchain; all my work depends on it. So before I jump in to change the whole consensus mechanism that secures chains, I want to deeply understand how PoS chains are secured and if it is enough.
PoS has clearly brought a lot of improvements and updates to problems that PoW can’t handle. However, new issues are highlighted as more users switch to this new mechanism. The theoretical flaws of PoS could emerge even more in the future and in practice at some point. So if we have these warnings from analysts and experts, can we fix these issues down the road or should we look for more alternatives?
For example, Solana uses a completely new consensus mechanism called Proof of History, which helps solve the problem of universal blockchain timing and increased network speed. It has proven to be very efficient, more so than Bitcoin and Ethereum. But as with any consensus mechanism, PoH has its problems. Centralization refers to less dApps and others.
Since Proof of Stake and Proof of History haven’t been around long enough, we can’t jump to conclusions just yet. They have not been fully tested or tested at scale. What can save the PoS consensus mechanism is the fact that it has the advantage of introducing measures to ensure validator behavior and verification of valid blocks only. If bad blocks are validated, the validator will face a slash, meaning they will be penalized.
Will Blockchain Mining Ever End?
The first blockchain, Bitcoin, was created using the PoW system. This is the so-called “gold standard”. Will we ever be able to get away from him? Will the bitcoin network ever move away from it?
Yes, Proof of Work and Bitcoin laid the groundwork for other consensus mechanisms such as Proof of Stake and Proof of History. While nothing is 100 percent secure, it is highly unlikely that Bitcoin will ever change its consensus mechanism to an alternative.
A change like this would mean complications, as each miner would have to adapt to the new way of protecting the network and earning less Bitcoin overall. In theory, Bitcoin could switch to another mechanism, but it won’t. For the foreseeable future, Bitcoin will maintain its trusted PoW and will not be staking.
Long story short, I think a lot more time needs to pass before we can say for sure how the problems with the Proof-of-Stake consensus mechanism will be resolved. At this point we know that PoW is no longer working and needs an alternative. Proof-of-stake is a good direction to go, and new blockchains are unlikely to adopt the old PoW. It is safe to say that despite the problems, Proof of Stake is redeeming blockchain.
It is clear that we are heading in a new direction that leads to solving the environmental and other problems of blockchain. In my opinion, security is an ongoing issue, and we can always add more layers of protection as these blockchains and the number of participants grow. We still have to see where proof of stake will take us, but we hope to invest real efforts to make it the most efficient and secure.
Guest post by Tomer Friedman of 42 Studio
More than 15 years of management experience in the Digital & Technology world. Throughout his career, Tomer has accumulated knowledge and skills that have enabled him to realize his vision of building and managing teams that deliver world-class performance. He has built and guided global teams and led team leaders to exceptional achievement by cultivating innovative thinking, leading synergistic efforts, and focusing on high-quality execution.
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This post Opinion Piece: Is Proof of Stake Redeeming the Blockchain or Ruining It?
was published first on https://cryptoslate.com/is-proof-of-stake-redeeming-blockchain-or-ruining-it/