Op-Ed: Is proof of stake redeeming blockchain, or ruining it?
Proof of Work has gotten a bad rep over the past few years as mining firms have grown along with the environmental ramifications. As the CEO of a blockchain studio, I have struggled with the environmental impact of the miners.
I am personally responsible for the creation of many blocks across many chains. Whether we’re minting NFTs, creating smart contracts, or developing a dapp, the Studio has done a lot of work across the blockchain arena.
But we also know first-hand that mining creates a super-secure environment for the transactions – security is the bottom line of blockchain transactions, after all. So, I wanted to find out for myself: is mining going anywhere? Is Ethereum 2.0 marking a shift in a new direction?
Here’s what I discovered.
To what extent is Proof of Work really impacting the environment?
The headlines might not be lying this time around. As we move towards a common goal to save the planet, reduce pollution and go green, Proof of Work falls into the pollutant field. In this case, numbers do speak for themselves. Reports show staggering figures, with energy consumption surpassing that of entire states. And not small ones.
Proof of Work is utilized by the great Bitcoin, the second runner-up, Ethereum, Bitcoin Cash, Litecoin, etc. If we know that the biggest volume of transactions 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. 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 yearly; that’s more than The Netherlands, Argentina, and UAE. But they are not combined, each. Ethereum takes second place by consuming 99.6 Terawatt-hours, more than Belgium, the 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 data we need to consider. 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 leading polluters of our planet is global CO2 emissions. If we know that this is the case, why add to the already shocking numbers pollution-wise with a mechanism that increases emission? If our goal is to cut down on pollutants, and if there is a safer alternative, why not switch? Ethereum is already putting in the efforts with Eth2.0. But will the others do the same?
Is Proof of Stake a good alternative?
Speaking of alternatives, Proof of Stake comes to the rescue. Proof of Work and Proof of Stake are similar, though. They both represent mechanisms utilized on the distributed network through which the participants can agree on which transaction block is added to a specific blockchain. The difference? The process of reaching that same endpoint.
PoW demands large amounts of computing resources and energy, which generate new, validated blocks. Proof of Stake revolves around staking. Staking is a bit like voting, as participants, also known as validators, stake a certain amount of cryptocurrency behind a block they wish to add to the blockchain. The pledged coins are thus locked while the transactions are verified but can be unstaked if you wish to trade them.
PoS requires crypto holders to “vote” for legitimate transactions approval. But what’s in it for these validators? Well, the reward for voting on legitimate transactions is receiving newly created crypto over time. So, the “stakers” get rewards, and planet Earth gets less pollution.
The primary advantage is that PoS avoids the need for investing additional sums of money into 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-growing, energy devouring costs coming from PoW protocols.
Another advantage is the promise of greater scalability and output than PoW. Transactions get faster approval without complex equations in the picture. PoS is less energy-intensive and has greater speed and capacity. But is there a downside to the protocol?
PoS leans towards centralization, as greater power is given to those holding larger amounts of cryptocurrency. They can excessively influence transaction verifications, thus tampering with the very nature of the blockchain – decentralization, creating whales who control larger supplies of various crypto. With no limitations set to a single validator, wealth concentration could be a potential issue.
Security is another issue that can be a tough obstacle for the mechanism to surpass. Theft and hacking are the main dangers of Proof of Stake, as there is a greater chance of a 51 percent attack with smaller altcoins. This mechanism can also lead crypto users to hoard tokens rather than use them to obtain their transaction validation powers.
Does Proof of Stake really provide enough network security to be taken seriously?
I’m personally invested in the security of transactions on the blockchain; my entire work depends on it. So before we jump to change the whole consensus mechanism securing the chains, I want to deeply understand how PoS chains are secured and if it is enough.
PoS has clearly brought many improvements and upgrades to the issues PoW cannot handle. However, new issues are highlighted as more users shift to this new mechanism. The theoretical flaws of the PoS might surface even more in the future and in practice at some point. So, if we have these warnings by analytics and experts, can we fix these problems along the way, or should we look for more alternatives?
For example, Solana uses an entirely new consensus mechanism called the Proof of History, which aids in solving the issue of universal blockchain time and increased network speed. It’s proven to be very efficient, more than Bitcoin and Ethereum. But as with any consensus mechanism, PoH has its issues. The centralization concerns fewer dApps and others.
Given that Proof of Stake and Proof of History hasn’t been around long enough, we can’t jump to conclusions just yet. They haven’t been fully tested or proven at scale. The very thing that can save the PoS consensus mechanism is the fact that it has the benefit of introducing measures to ensure validator behavior and verification of valid blocks only. If bad blocks get validated, the validator will face slashing, which means they get penalized.
Will Blockchain mining ever end?
The very first blockchain, Bitcoin, was created using the PoW system. This is the so-called “gold standard.” Will we ever be able to shift away from it? 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 certain, It is highly unlikely that Bitcoin will ever change its consensus mechanism to an alternative.
A shift like this would mean complications, as every miner would have to adapt to the new way of securing the network and earn fewer Bitcoin overall. Theoretically, Bitcoin could switch to another mechanism, but it won’t. For the foreseeable future, Bitcoin will keep its trusty PoW and remain un-stakeable.
To summarize, I believe that much more time needs to pass before we can safely say how the Proof of Stake consensus mechanism issues will resolve. At this point, we know that PoW isn’t working anymore, and it needs an alternative. Proof of Stake is a good direction to take, and it is unlikely that new blockchains will adopt the old, PoW. It’s safe to say that, despite the issues, 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 blockchain problems. In my opinion, security is an ongoing affair, and we can always add more layers of protection as these blockchains, and the number of participants grow. We have yet to see where Proof of Stake will take us, but we hope to invest true efforts to make it the most efficient and secure.
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