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Blockchain & Environmental Concerns: Proof-of-Work or Proof-of-Stake?

Introduction
Over the last couple of weeks and months, environmentally conscious people have been attacking Bitcoin for its large energy consumption. The critical comments and keyboard fights on Twitter have escalated in the aftermath of Tesla’s decision to suspend Bitcoin as a means of payment.   It followed from Elon’s tweet that Tesla is currently looking at other cryptocurrencies that use < 1% of Bitcoin’s energy.

Coincidentally or not, Ethereum’s long-awaited move from Proof of Work (PoW) to a Proof of Stake (PoS) network is estimated to cut energy usage by more than 99%. [1]  See the illustration below from a recent article by Carl Beekhuizen from the Ethereum Foundation. [2]

Any discussion on energy consumptions will inevitably be one-dimensional and superficial when considering a technology’s environmental impact apart from the advantages it provides. The question I want to answer in this post is:

Do the PoW-algorithm provides any advantages over PoS, and if it does, is there any merit in not changing to PoS from an environmental viewpoint?

Bitcoin’s PoW-Mechanism
The PoW consensus mechanism as applied by Satoshi Nakamoto in his original white paper is arguably the most essential and innovative aspect of Bitcoin. PoW allows users of the network to reach consensus regarding the validity of a transaction without relying on a trusted intermediary. That means, no third party such as a bank is needed to verify the transaction, debit the sender, or credit the receiver.

Bitcoin’s qualities of decentralization and trustlessness are a direct result of its PoW mechanism. The network has so far survived for twelve years, exponentially increased in market cap every four years, stood up against major corporate takeover attempts, and reliably settles millions and millions of transactions every year with virtually no downtime.

Bitcoin’s PoW mechanism has stood the test of time and remains to be the most secure, tested-and-proven blockchain in existence. So, why change something that works well?

PoS – How It Works
Technically, Bitcoin mining is done by brute-forcing, and it does – as pointed out by critics – indeed take up a massive amount of energy. The typical justification is that the computational power miners spent is necessary to preserve the network’s high level of security.

The original idea behind the PoS consensus mechanism probably came from a forum post on bitcointalk.org by a user named QuantumMechanic. PoS networks do not require any computer power, or even an internet connection, as rewards are allocated based on who holds the largest stake of the network’s currency. Not by the sheer amount of energy usage as in PoW networks.

In contrast to PoW, the PoS consensus mechanism is not driven by competition between the miners, but by an election process between the so-called validators. Terminologically, “the miners” are called validators in PoS networks, and mining is called “forging”. Users who want to participate in the forging process, are required to lock a certain amount of coins into the network as their stake.[3]

The PoS algorithm uses a pseudo-random election process to select a node to be the validator of the next block, based on a combination of factors that could include the staking age, randomization, and the node’s wealth.[4] In other words, it is not completely random which node is chosen to validate the next block, as it plays a role how much currency the validator has staked, and/or for how long the user has participated in the network.

To make sure that the wealthiest nodes are not unproportionally favored in the forging process, or that large stake nodes do not dominate the network, the randomization is an important feature of the election process.  The PoS network is pseudo-random, in contrast to PoW, which is completely random, as there is no way for the nodes to reverse-engineer the SHA-256 hash algorithm or calculate a nonce (see my post on Cryptography in Bitcoin).

PoW vs. PoS
Some say that Bitcoin may follow Ethereum’s example and adapt to PoS. The Bitcoin community at large would oppose such as change.  The PoW concept forms the backbone of Bitcoin as a core part of its DNA. Besides, it works, and it works well.

So, back to my original question, do PoW provide any advantages over PoS from an environmental viewpoint? After my initial research, I say that it does.

What the critical voices say about PoW mining is that the energy usage is a waste. However, the same argument could be made against Pos: Staking crypto to validate blocks, is a waste of capital. The capital could be better spent on windmill farms, solar cell panels, or carbon capture and storage technologies which would benefit the environment.

Much energy spent on Bitcoin mining already comes from renewable energy sources, and miners can utilize off-grid and surplus energy that would have otherwise gone to waste. And take solar energy for instance. The sun is a virtually unlimited source of clean energy. If we could harness solar energy from just 1.2% of the Sahara, it would be sufficient to cover all of the energy needs in the world.[5] The technology is just not there yet.  We need better batteries to store up the energy, better solar panels to capture it and convert it into electricity. However, we will be able to utilize renewable energy sources, such as solar power, much more efficiently every year that goes by. Eventually, today’s energy concerns will be concerns of the past.

The same thing cannot be said about capital. The capital that flows into locked stakes in the PoS-network, is not abundant or virtually unlimited, the same way that renewable energy, potentially could be in the future. The capital is urgently needed elsewhere.  So, in the longer term, is PoS really the best choice for the environment?

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[1] https://coinmarketcap.com/alexandria/article/a-dive-into-ethereum-2-0  (27-05-2021).

[2] https://blog.ethereum.org/2021/05/18/country-power-no-more/  (27-05-2021).

[3] https://academy.binance.com/en/articles/proof-of-stake-explained ((29-05-2021).

[4] Ibid. (29-05-2021).

[5] https://www.forbes.com/sites/quora/2016/09/22/we-could-power-the-entire-world-by-harnessing-solar-energy-from-1-of-the-sahara/?sh=57c8fda6d440 (31-05-2021).

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